Q3 2020 Simon Property Group Inc Earnings Call
His presentation, there will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
As a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Tom Ward Senior Vice President Investor Relations. Please go ahead Sir.
Thank you Jonathan Thank you all for joining us today.
Presenting on today's call, David Smith, Chairman, Chief Executive Officer, and President also on the call Brian agreed Chief Financial Officer.
Really 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 free part or all of the private Securities Litigation Reform Act of 95.
Actual results may differ materially due to a variety of risks uncertainties and other factors. We refer you to today's press release.
Filings for a detailed discussion of the risk factors relating to those forward looking statements.
Please note that this call includes information that maybe accurate only as of today's date Lucky.
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.
Both the press release, and the supplemental information or Billboard or oil website.
That's true so Simon Dot com.
For those who would like to participate in the question answer session. We ask that you. Please respect the request to limit yourself to one question and one follow up question. So we might allow everyone with interest the opportunity to participate.
For our prepared remarks, I'm pleased to introduce Davidson.
Good evening and thank you for joining us today.
Our results this quarter reflect continued progress in tenet reopening.
In rent collections.
All of our U.S. retail properties are currently open with nearly 25000 tenants across our portfolio open and operating and.
And welcoming shoppers to this year's extended holiday shopping season.
Collections from our U.S. retail portfolio.
Continue to improve.
As of November six we have collected 85%.
Third quarter net build rents second quarter collections are now 72%.
Excluding the deferred amounts in and the calculation the second quarter collection rate increases to 78% the.
The details of our collection percentages are clearly laid out in our press release.
You should.
This evening well, we've made significant progress in addressing collections, we still have some unresolved amounts with certain larger national tenants, who want Fortunately refusing to pay their contractual rent, even though they are open and operating.
Let me turn to our results third quarter reported at this though was 723 million or $2.05 per share.
Please with the solid profitability.
Oh, the quarter and the more than 600 million in cash flow, we generated for the third quarter, our domestic and international operations in the quarter. However were negatively impacted by approximately one dollar and 10 cents per diluted share primarily due.
Due to reduced lease income, including sales base rents or ancillary property revenues caused by the cold weather.
Disruption, partially offset by 23 cents per share from cost reduction initiatives.
Net 87 cents per diluted share and then not another five cents from our international.
Operations as well.
In the third quarter.
Also includes over Apropos 10 cents.
Per share lower straight line rental income.
Cam six cents in the litigation expenses and one cents lower lease settlement income.
Compared to Q3 of 2019, no like I did last quarter.
For Q2, let me walk through the components.
A a year over year change in the context of portfolio NOI presentation, which you can find on page 17 in our supplement issued today and as a reminder, the following amounts are on a gross basis and are not <unk>.
Company share total portfolio in Hawaii decreased from 1.5 billion in the third quarter of last year to 1.2 billion. This year, a decrease of 22% or approximately 3300 $38 million.
The year over year decline for the third quarter was primarily due to the following approximately 270 million in toll from both domestic rent abatements and higher provisions for credit losses, primarily associated.
With retail bankruptcies.
It is important to note we did not amortize any of the abatements granted we recorded the abatement as negative LIFO income in the period in which the abatement terms were agreed with the tenant the majority of the abatements that were granted.
We're to the thousands of local small businesses small businesses entrepreneur wars and restaurant tours, who had been suffering immensely with code or efforts to support local tenants in our centers were resoundingly appreciated nearly 95.
Percent.
Our local tenants reopen their stores and additional 165 million.
Ah the reduction was due to lower minimum rents and reimbursements.
Sales based and short term leasing or.
Due to the a and ancillary property revenues.
As a reduction of from co grid as well as lease terminations from our bankrupt retailers.
And as I mentioned to you before lower sales volumes due to lingering cold but impact.
These decreases were partially offset by a $100 million of our cost reduction initiatives now operating metrics mall and premium outlets occupancy at the end of third quarter was 91.4% down 150 basis points.
From the second quarter of 2020, all of that is essentially a function of tenant bankruptcies, which caused a 120 basis.
A basis point reduction.
Average base rent was $56.13 up 2.9% year over year yeah.
And.
We are pleased to report shopper traffic in total sales volume continued to improve with each other.
Sequential.
Month throughout the third quarter quarter over quarter sales, that's Q3 of 2019 compared to Q3 two.
2020 were down 10% leasing spreads declined for the trailing 12 months, primarily due to the mix of deals from the prior year pill period that have fallen out of the rent spread calculation the leasing environment is in.
<unk> in the third quarter, we signed 600 leases burn nearly 2 million square feet and we have a significant number of leases in our pipeline we.
We are pleased to see a continued strong interest for spaces across our differentiated portfolio demand for space in our premium outlet portfolio has been really strong with the space. It has become available as a result of recent tenant bankruptcies.
We are signing deals with the best new and exciting brands want access to our higher.
Highly productive outlets.
And ER and Oh terrific who's not here, but listening I'm certain we are executing both long term and pop up deals with leading brands, including names like product for your Ferrari All Burdzhanadze just to name a few.
And many many more during the quarter. We also resumed construction on the redevelopment of the Macy's men's store at Stanford shopping center with a RH mansion and we started construction on the former Bloomingdale's store.
Oh for the falls and and at the shops admission Diego or that's the good news with this diligent focus on capital spend.
All approved projects right now through 2020 or net cash lundeen is only a $140 million.
Now, let me turn to a branded retail investments spark as you know, it's our 50 50 joint venture with authentic brands group acquired Brooks and Lucky brand's out of bankruptcies.
Both our story and while a widely recognized brands.
The <unk> combined global sales of over 1.5 billion, we acquired these companies cheaply.
And we believe we can grow the EBITDA and achieve a significant return on our investment.
Both brands have been integrated into this spark platform and we're very pleased with the progress we've made in such a short period of time, we recently partnered with Brookfield, as you know and or in contract to acquire the operations intellectual property and certain real estate.
Hey.
Oh, the J.C. Penney company in a going concern transaction under section 363 of the bankruptcy code, we believe in the pennies brand.
Company did over $9 billion in sales pretty cold did we believe we can return the company to increasing sales and grow the but does the company has a loyal core diverse and inclusive customer base concentrated in a moderate to high.
Higher Aspirationally category. This customer is important to the community as is J.C. Penney.
And to us and and to US and we expect we will continue to grow this customer over time and we're extremely proud to serve the community in that capacity.
We believe that with us and Brookfield, bringing focus energy passion ownership enhanced financial discipline to the operations.
We'll have the opportunity to earn a significant return on our investment.
And as part of that we also anticipate or are a good partner authentic brands group will become an investor in the a and the buying group yeah.
And as importantly, we're very pleased to save over 60000 jobs.
In our country. We continue you are for our part to support the local community.
In our efforts now balance sheet at the end of the third quarter. Our total liquidity was more than $9.7 billion, consisting of 8.2 billion of available credit facility borrowing capacity 1.5 billion of cash.
For a total of 9.7 and this is as a reminder, net of 623 million.
Quarter end commercial paper outstanding we've been active in the secured debt markets have addressed all of our remaining loan maturities for the year, including a refinancing of the mills at Jersey Gardens through a single asset CMBS.
Securitization securitization, which has been priced and scheduled to fund next week.
Our debt covenants.
Have a well above required levels well above it was significant headroom in our balance sheet financial flexibility our distinct advantages in our retail real estate industry that that cannot and I'm sure not overlook and that.
Dividend we paid.
He a common stock dividend of $1.30 in cash.
And then finally before we open it up to <unk>.
To any questions I again want to thank my Simon colleagues.
For their continued resolved in running our business under often trying circumstance circumstances environment that has been constantly changing.
We with we have withstood cove it.
We have what stood government shutdowns, we have withstood lack of federal and state help, especially in real estate taxes, we have withstood fires in northern California.
Occasions in Louisiana, and elsewhere and and civil unrest.
And we're pleased with the cash flow we're generating.
And I want to thank my colleagues for Boston, There hop and.
Things are looking up we're ready for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one as a reminder, please limit yourself to one question and one follow up our first question comes from the line of Craig Schmidt from Bank of America. Your question. Please.
Oh, great. Thank you.
I just given the acceleration of cobot cases.
And the possibility of future mandated closings I wonder if you're seeing greater consistency concerning store opening orders or store closing orders from state and local governments, particularly with regards to the demands made on standalone retailers versus mall operated properties.
Well you.
You know the only the only.
Situation that we have right now is in El Paso, where an enclosed mall.
Is.
When asked to.
Actually shut down.
That is our recent that happened over the weekend.
Again, I think enclosed malls or.
Being treated unfairly and consistently.
But you know we deal with what we deal with right now.
That's the only one Craig we're hopeful that that will reopen.
And listen I think the consumer obviously is cautious.
Quarter over quarter sales decrease is only 10%. So you know the consumer is starting to come back they are wearing masks and you know with all our protocols were you.
We.
You know were helpful that we're hopeful that that trend will continue but there is certainly no guarantees and as far as predicting the government and state and local actions I mean.
Obviously the level of inconsistency.
It's been very frustrating.
It's been state by State City by City County by County.
It is.
A testament and are often on war often overlooked that you know we've been able to deal with this as well as we have.
And we've done it when I've asked people to take pay cuts and they've done is they've shown up to work every day.
You've seen the collection that improvement in collections I'm I think we're making are basically all the right moves.
And you know, but we can only deal with what we can deal with I I had no.
I don't know if further.
Restrictions will be an order we have yet to see any evidence.
You know that that no war environment spreads anything obviously, the outlets and outdoor centers are doing better.
But as you know we have 50% of our portfolio.
And a wide dedicated to that that's kind of why I think you see our performance.
The way it is and.
No.
The one line item that's up if you look at our financials is real estate taxes, when our local jurisdictions going to start giving relief to read retail real estate taxes.
Impaired the distribution warehouses and the like it's completely.
It's completely opposite we do more for their communities.
Then then then basically other property types and I am hopeful that at one point in the near future that a that they these communities will recognize you.
Great and then just as a follow up.
We've noticed the store closing cadence has slowed since labor day I'm wondering if the occupancy number in Threeq you 20 could be the trough or do you still expect maybe some lower occupancy in first quarter 21.
Well I think it will that will be a function of.
You know whether we have further bankruptcies are not crack I think.
Based on what it is we should be fine, but you know I mean it is possible.
That will have further bankruptcies and we'll have to you know when that happens obviously, we'll deal with that but.
There's there's certainly some bankruptcies that are that that are potential out there in the next few months.
Okay. Thank you sure.
Thank you. Our next question comes from the line of Rich Hill from Morgan Stanley. Your question. Please.
Hey, good evening, David Thanks for taking my question first of all thank you very much for the transparency on the bridge to rent collections I think thats tough not to best in class. So thank you for doing it [laughter] I want to ask a strategy question and maybe think about your portfolio. One of the things I think is misunderstood about Simon is that you're not a mall.
Do you own a diversified portfolio of retail real estate.
Across property types and.
The quality spectrum. So I'm curious as you think about your portfolio on the other side to COVID-19.
Do you like are you comfortable with having you know call it 46% to 49% of your total NOI coming from malls do you like do you want less do you want more outlets you want more international I'm, just really curious about how you think about your portfolio maybe over the next decade.
Well I I listen I think the we're a strong believer in the outlet business as you know.
And.
Definitely with retailers and brands are moving more and more toward.
Direct to consumer.
And so I think that plays well in into that and obviously the outdoor environment.
<unk> continues to be an advantage.
Certainly with a you know with the co but still very very much part of our lives. So.
I like where we are I think you know.
Over time our portfolio.
Non core assets will be shifted.
But usually those don't.
Having material.
Impact on our NOI or cash or cash flow.
And.
So I kinda I kind of like where we are or will you know, we'll probably shed some more properties I think international.
AH you know is in treaty now, there's there's value that we've added the outlet business. There that we have is very good the outlet business in Asia is strong. So we're going to want to grow that but I feel kind of like the diversity by region by product type.
And.
Bye bye.
Certainly by domestic versus international so our international results were pretty good.
They were down though we had some.
You know some new properties opened up and some expansion. So it's hard to see that but you know the core number was down a little bit but.
They came back pretty strong obviously, there's a big way going on now in Europe. So they are starting to see some more restrictions [noise].
But I think the direct to consumer from the branch is really important and I think that plays well in the outlet business by the way, it's helping shop premium outlets.
It's better that hour and a half with Ah My partners, both that rula guilt and and and Ah Ah.
The kinetic folks going through a bunch of brands that want to be hooked up. So this vision that we had is actually going to come to fruition I hope knock on wood.
So I like where we are but we're always looking to add quality real estate and you know I I look at the quality more quality me is more important than.
Yes, potentially the property type.
I think that's.
You know that that's the big focus you know theres going to be obsolescence issue.
Retail real estate.
So I think owning the best of the best is.
We are going to be a key then our success in the future yeah.
Yeah. That's that's that's really helpful. David.
And the reason I was asking the question is is this it's just seems to me that on this other cove. It 19 world whatever it is that the retailer itself is probably like you agnostic on the type and it's just looking for the best quality. So I'm curious is that beginning to resonate with retailers as you think about as they think.
About their footprint and how Simon property group can help fulfill those footprints or is it still too early.
Absolutely and I would say that trend as you know happened completely I mean are you know.
Are we in that in the in the mall.
The mall is always competed with the guy across the street.
For the retailer so that's.
That competition still exists, it's certainly only gonna be exacerbated.
By what's happened over the last.
678 months and you gotta on quality and it's somewhat today, it's somewhat irrelevant, whether it's no. This kinda asset or that it's really doesn't have critical mass is a well located.
Does it serve the customer the way they want to be served.
Got it that's helpful. Thanks, Dave It a little hard to.
Sure.
Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Sandler Your question. Please.
Hey, good evening, good evening out there and do you have that David.
You know we're out we're at we're definitely out here man Okay.
Well loved your your center of the biotech and and health World. So we appreciate everything that the biotechs are doing.
The good news is when when Lily gets their vaccine or I Hope you know my team's first in line just because we're there across the street from us Okay [laughter].
We'll see.
Excellent excellent.
Hi, So two questions hearse again appreciate the breakout.
Actually this provides clarity so that people can see that the collections net basis or if you want to do collections on a gross basis. It's helpful. But you had mentioned the abatements would basically expensed in the period granted.
So.
On a on a go forward basis, as we think about fourth quarter and the ramp up does this mean that you know we should see fourth quarter earnings jumped by 200 million or how should we think about that to be impacted the deferrals and the impact of the abatements on a go forward. So we can think about the.
Ration of Simon.
I'm not asking for guidance, but I'm, just trying to get a ramp up how much no yeah yeah.
Yeah, I mean, you're you're asking for guidance cleverly, but I I listen I would you know, though it everything is very still up in the air and obviously.
We had.
You know the world's had this positive news today about the vaccine, but the fact is covert is spiking so well.
You know we have to be very serious about that I would hope Alex I mean, the big the big issue.
You know the big thing that we've confronted agree.
Aggressively in Q2, and Q3 and the way I look at it frankly, there's almost put those two quarters together.
You know because you.
You're right in a.
You know.
We took the P. and L. head when we granted the abatement.
And we that's the right way to look at it but I would hope.
That the vast vast majority of any abatements.
ER are behind us that though to be clear that's not to say that if there's an appropriate trade with a retailer.
That's a win win for us that we won't do more.
And what at what exactly and you know its new deals lease extent you know, it's the normal stuff that you would do but I would I would literally hope that go worst is behind us.
But listen I don't know what the new covert cases today was there was a little busy but I'm sure it's well over 100000.
And.
And you know I can't guarantee that but I would say between the credit provisions.
And the bankruptcies.
Well I'm, sorry, the credit provisions, including the bankruptcies are kinda all melted in that number and the payments that we went out of our way to do we weren't legally required to do.
But we did well for people that were you know one on the local front very sensitive to their plight.
And to you know there was a decent trade for us and the retailer and we want them to prosper frankly.
I would hope that the vast majority of those two numbers credit loss issuance as well as abatements are behind us.
Okay, but I, but David you said earlier, the abatements were largely your local tenants. So they view their made it are they having so I I said the majority of that we'd get Grand abatements, others. So you.
There's there's there's other abatements that have been in there I mean, but that.
Yeah, and that's a that's a that's a.
You know, it's a it's a pretty big number in terms of that we didnt have to do and I like I said I hope that I hope that I hope it's behind US you know, we'll have more in the Q4, but.
What we're projecting is a lot lower than what we've had in Q2 in Q3 together okay.
Okay. So correct. So basically you have taken to heart approach with the tenants both entities.
The statements in that two Q3, Q, so hopefully going forward just less okay. I got it. The second question David is on the retailer front.
Hi, Brooks brothers Lucky brand's you did airports down they're going to do JC Penney you highlighted the sales he highlighted this customer base that's loyal to the brand.
What are you what are the elements without giving away totally the secret sauce, what are the elements that give you confidence when you look at troubled retailers Bancorp wants to say Hey, you know what the core shopper for this brand is still there despite that the retailers had trouble and is in bankruptcy.
We feel that the core shoppers is substantially still in place that we that we can recover because it's certainly not just buying something cheap enough anything can be cheap there's got to be something tangible that makes you feel like you can get these customers to really come back and do it in a profitable way. So what is it that gives you that confidence well you know first of all.
All were were.
Well, we're we do or don't underestimating buying things cheap okay, Alex so.
That's always it's always good to do that regardless.
Listen I, just think based on the sales that we're seeing from the brands, we do a lot of brand research and.
And then we attack the problems with the profitability given you I won't name names, but you know Brooks brothers is a great example, it's got a great following.
It had to strangers real estate footprint.
They work they had single stores that were paying $3 million.
A year in Red I won't name names.
And the ability to reject those leases.
And create profitability there get out of that store is reduce the overhead and then to do all this special marketing.
And.
With a b G is been a winning formula in addition to that we source it better.
And since we have this platform, where we can leverage our base off of its it's just like it's been a very profitable thing I will tell you one day spark will be worth.
You know I mean, this isn't lifestyle, but you know, it's it's going to be worth.
You know, we're going to make a billion.
Plus on that investment without question.
And and it's just we know the brands, we do a lot of research.
Avi GE has been a very good partner they know how to blow out to.
The license aspect of it which were a partner and.
We get out a bad stores, we buy the inventory at a discount.
We rightsize the overhead and we're just and we and we operate with better business judgment and Lo and behold. The suddenly have the business. It's got positive the beep significant positive EBITDA and you haven't paid much for it.
You know that and I think when you put it all together, we'll have something that'll have great great positive EBITDA, and we'll end up making a billion plus out of it.
Well then we look forward to see my partner, Thanks, a lot more but I'll.
I'll give you that number will look we look forward to the exit and seeing that billion dollars crystallize well I mean, yes, you know the I don't know it's been it's been a good <unk> been a great investment. So you know why.
You know I don't know that we'll exit anytime soon.
Okay. Thank you.
They queue. Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Your question. Please.
Hi, Good evening, maybe just following up on this question more on the near to medium term then I think you've mentioned that your investments in the retailers have been it.
Pricing, allowing you to earn a significant return in terms of how this ends up impacting Simon.
The near to medium term expected contribution to be meaningful itself and if so like by how much and when or is it that the investments generally support.
Core business or I guess both.
Well I think it's all the above it will it will be profitable we have that separate line item in our 8-K on what page is that.
17, so it's a little Neil the only thing Caitlin and it's a little you know obviously, it's more volatile than.
And then you know.
Then the ran aspects of our business, but.
Yeah.
Because again, a little bit bigger not materially bigger, but a little bigger we decided to.
Outline that separately. So you can you can look at it you know as a standalone on its own.
And and then obviously don't forget.
You know they do pay us contracted rent to spark is a right payer to the Simon property group and.
And it's and it's a property so yes.
Yeah, we get the added benefit of the cash flow from running the business operationally.
And and then then obviously, we get the added benefit of a rat.
The rent that's collected from the from the entity.
With the stores that we have.
Okay, and then maybe on the dividend I know, it's up to the board, but given the.
30 per share dividend for Threeq, you historical dividend rate current epicel in cash flow what metrics are drivers do you think will be most important and establishing before two dividend that teacher corner.
Well listen I think I think we still are very very cautious in the sense of the dividend just with respect to coal. So you know once we.
You know I mean, I feel like at least.
The worst is behind us, but we don't know for sure. So I think we'll continue to be conservative in that.
Obviously, you see our cap spend.
Way down.
You know on new development or redevelopment.
That may tick up a little bit next year, So we'll balance that.
Obviously, we got to deal with our taxable income.
As well, but I I I can't give you a a real true run rate yet.
I think we'll be in a better position for 21 that explain that when we do our.
You know, our our earnings guidance, which we will reinstate.
In our earnings call I mean, we have a pretty good idea what we expect from next year.
But we'd like to go ahead and finish the year.
As well given all the volatility out there, but but you know we're confident about the dividend and the cash paying aspects of it.
And the cash flow generation from our company and I think if you you saw that in the Q3.
A reasonably healthy pick up from Q2, when we were really in the midst of.
I'm trying to figure out told.
Okay. Thank you George.
Sure.
Thank you. Our next question comes from the line of Michael Bilerman from Citi. Your question. Please.
Great. Thank you good evening David.
I was wondering if you can talk a little bit about the leasing pipeline you've talked about the leasing that you accomplished in the third quarter that 2 million square feet and a very large pipeline that you're working on and I was wondering if you can provide us maybe with some a little bit more granularity about that pipeline how much of it is new leasing.
For vacant space, new leasing for tenants that are going to be vacating.
And also potential renewal activity and within that maybe you can sort of just highlight the changing nature.
Maybe the leases it's I don't know if there's differences in term or T.I.s or or anything just to give us a little bit more flavor for what the current environment is like.
Well again, that's I'm not going to get into that as much as you want I'm not going to that's not really the purpose of the call to go through the granularity of.
No, although all the leases, but I would say generally the lease terms has not changed.
T. age has not really increased.
And we're seeing more box activity there.
There's a number of retailers that want to grow their footprint.
And the and the outlet business or not.
Number the better and the higher brands. We're also seeing that you know the the the Warby Parker is or the world wanting to grow their footprint.
And you know the Internet oriented company.
Companies.
And then you see companies like American Eagle and.
Others that are growing their footprint.
There's a there's a well known retailer that has there.
Casual wear business, that's growing their footprint significantly I think we've got 20 deals in the works for them. So it's across the board.
And I would say were mostly replacing.
Stations that we got back from bankruptcies leases that have terminated and the renewals are.
You know, it's a lot of the renewals were doing now we're doing as part of our coal good.
Negotiations so to.
The extent that we did a deal in abatement.
You know we may have addressed 20, and 21 renewals and it's a it's a it's a judgment retailer by retailer.
And you know it's.
We'll work at it I mean, obviously you know.
You.
You know that the negotiations.
Aren't easy because you know I mean.
Cove, It is made them nervous and obviously there's.
A lot of excess capacity in our.
Retail real estate industry, but I think we'll hold our own and I. You know look I think the cash flow yeah, we'll see improvements for cash flow next year and.
Again and that will be a combination of.
Lease renewals new business better sales.
We lost a lot of income just because we were shut down with all of our Simon brand venture income.
All this stuff that's traffic driven so I think we'll make a rebound along all those lines and no. We're not we're not doing.
ER.
Just percentage right deals.
You know the outlet business has had historically some of the elite anchors a bad percent rent deals only.
Except that we do it we have a floor in there.
And a clearly defined.
A definition of sales, but it's all over the board, but it's.
I guess, what we're trying to convey to you Michael is that we are open and doing new business and that's you know that's that's.
That's important I think we'll have a better we'll get more granular next quarter, but were open to win new business and.
The retailers are.
I'm sure. There are a number closing stores are there are a number of bankruptcies, but the ones that are out there are looking to grow their footprint.
That's helpful color and then just as a follow up on capital deployment.
You see the big focus of yours has been on a lot of these in a bit of.
Transactions buying some brand name retailers, but you also talked on the call in response to a previous question about buying high quality real estate and I wanted to better understand.
What sort of opportunities may be out there either buying from your joint venture partners, which may want to reduce their retail or maybe they don't and they want to go further in.
But you also have a transaction that you're.
Having a lawsuit over that's very high quality real estate. So I'm just trying to understand how all of this.
It's together.
Well, Michael again, I respect you you know immensely.
And.
No, we really are not going to I'm not going to get into the.
The Taliban situation, obviously, you start you know or litigation expense.
With that.
But.
No we're not we're not out of.
I'd say, if there is quality.
Real estate, we're going to look at it and much like.
And it but there's got to be bargains that can be had.
And you know so we will see you know what that what that transpires, but nothing nothing really you know I wanted and also want to be clear because we've been asked this I mean, we're not between the penny and closing of a Brooks and Lucky there's really nothing else on the spark or the.
Retail front that we see right now.
Clearly for the rest of the year, so that that business is all about it.
Integrating.
Brooks and Lucky into spark and then obviously, we have a tremendous amount of work to do with our partner Brookfield and the management team at Penny.
Staying.
You know they're turned around and so we are play this fall in that category there won't be anything.
No there won't be anything.
Going on on that front and we're really you know right now we haven't really looked at anything external.
Because obviously, we got our hands full you know, but it is a testament to the company that you know.
We couldn't do Penny we can.
We can do are we can do our debt deal we can.
Shut down our properties open them up deal with we've we've done 14000 lease amendments right Brian.
We've collected rent that hasn't been easy okay.
No its not like they just suddenly said, okay I'm going to set your rent check it hadn't been that easy. So I mean, we've been you know.
We've been.
You know we've been busy yeah, obviously weve done a lot of refinancings on the secured fraud.
We've been doing just about.
Every shut down the pipeline in terms of redevelopment development brought it back up.
To some extent so I mean, we are we've got our hands full.
Well I think we've been executing unbelievably well.
With all that all of the all of the.
Things that had been thrown at us So we're really not looking externally at this moment.
[laughter] sounds like Brian has left here now.
Hey, Hey by the way I think between Tom and Brian and Adam here I'm the only one.
With hair, however, depending on your vantage point, you may accuse me of being in the same spot so [laughter] okay.
Okay. So let let's move on let's move on.
Thank you. Our next question comes from the line of Derrick Johnson from Deutsche Bank. Your question. Please.
Hi, everyone good evening out.
I like sports harm Pinstripes, Soho House, and Nobu hotels, how do you guys view. These earlier pre cove, it investments and or partnerships and do you still believe them to be a viable path forward post the vaccine and as we emerge.
From the pandemic or in effect has the merchandising approach actually change.
No look obviously, we wish you a good question and we obviously wish.
That the pandemic has hasn't didn't hit us, but and hit those businesses, but so how.
It has a great brand and ultimately will be stronger.
As it gets.
Gets everything back on line. So the reality is very comfortable and they actually.
I brought in some new capital.
At the price that we did a couple of months ago I think so so holds great.
Harm, we absolutely have Woodbury and Burlington opening.
Next year or I think Woodbury is opening in January.
And Burlington in the spring.
And my son and I.
And as Jeff said was mix listening, which I doubt it is but we had a great.
Carried out a day.
Dinner at par so I'd encourage everybody to go eat there it was really good.
Chicken Parm dinner.
I think it's a great brand.
Lifetime, obviously will be the survivor in that industry I have all the confidence in the world.
Great CEO entrepreneur, great brands, great customer base.
So I think by and large you know we feel like we're a pretty good spot I don't think you know I think whats changed there because I don't think we'll do the little you know.
Venture deals the way, we did even though we've had some summary.
Some recent pops in those meaning we got some you know we're going to we're selling our interest in me on these at a profit and and we've there's some new capital that's come into some of those businesses at prices higher than what we came in but.
But I don't think we'll do those little little deals anymore. I think you know, we've got too much or too much to say grace over what I think all the brands that we've invested in.
We feel generally pretty good though they've all frankly you.
No they're all fit the flywheel that we were creating a we just didnt anticipate.
The black Swans have black Swans.
And but all of those companies are alive and I expect them to you.
And I would just like to come out of it okay.
Okay, Great that's helpful and sticking on some larger brands.
Are some of the brands you recently made life line investments I know they were mentioned briefly Lucky Brooks brothers Forever 21.
Well any merchandising additions and perhaps with authentic drives a focused re merchandising mix at J.C. Penney and hopes to accelerate sales is that on the table.
Great insight and the answer is absolutely well.
So that's that's a.
That's a one of the interesting things that we found is we do think that.
The combination of our relationships with the direct to consumer crowd.
As well as.
All the brands that either we control or that a b G does that that that those products will find a home in Panama and there was a lot of intense discussions going on so we would expect.
To enhance the the the penny vendor matrix.
With the brands that.
Avi Gi controls as well as ours, so very very astute and the answer is without question.
Thank you.
Thank you. Our next question comes from the line of Mike Mueller from JP Morgan Your question. Please.
Thanks can you tell us what the pro rata Uncollectible reserve is that's in minimum rent for the quarter.
Ah the pro rata minimum rents.
In our joint ventures, not sure no the pro rata the Uncollectible reserve what it is rather thesis in the quarter were really doing this on a gross basis, because that's how we look at it.
Okay.
And then can you talk about how similar or different traffic and sales are at the outlets versus the malls.
The outlets are performing I don't want to necessarily get into the specifics but.
Outlets or <unk>.
Performing.
Better.
What we've seen.
A across the board, though it whether it's an outlet or a.
Or an enclosed center if it does cater to tourism.
Those are ones that are continue to be the continued to underperform our average.
You know so whether it's a you know.
In Orlando in closed door or outlet you know in Orlando, we have a we have an enclosed mall there as you know we have the outlet centers.
That market both are underperforming.
With.
Because of the lack of tourism, and obviously, you know pet or a universal and Disney operating that no.
So much.
Much less than than than full capacity.
Got it okay that was it thank you.
Thank you. Our next question comes from the line of Florida spent I come from Compass point Your question. Please.
Thanks, Thanks for taking my question, David I'm sure I had I had a question on authentic brands you suggested they're going to step into the into the JC Penney deal with that with Brookfield and yourself or would they be an equal partner.
And what pricing would they step in at the same price you guys bought.
Yes, the same the same price they will not be.
Ah an equal partner, but they'll put in you know us well end up reducing our investment.
Both us and Brookfield based upon the contribution they make.
Great and so how do you look at authentic brands, particularly I mean, you talked a little bit about having their brands selling their brands exclusively through the JC Penney outlets and increasing.
Increasing the JC Penney.
Private sales it sounds like well.
Well I didn't say necessarily exclusive but they you know they have a you know then they control a number of brands like Juicy couture as an example.
And there Juicy couture is not in J.C. Penney and so you know we're going through the vendor matrix now.
Do you know eventually I think panic will end up distributing those kind of brands that EPG controls and the J.C. Penney Department store.
So it'll be a win win for everybody.
Okay, maybe my follow up question with with some of those brands as well as particularly as it relates to the to the outlet business. So you mentioned your outlet business is doing quite well obviously there are open air. So they don't have quite the same restrictions maybe if you can talk to.
A little bit about how you see the outlet business could change or is it still going to be as reliance on apparel going forward and fans.
How is authentic brand sit in and is authentic brands a big tenants right now were large tenants in.
And your outlet business and could they be in the future.
Authentic brands is not really.
I mean, they had some brands that we don't we're not invested in Ah, but they do have outlet stores now they don't necessarily operate those stores, but.
Take an example Vulcan.
Were there a partner with Vulcan, we don't we're not Simon property is not an investor in that but they own the IP and they own part of the operations, but its really Vulcan.
Is used to be owned by caring group and then sold it but they operate bulk them itself operates outlet stores in our portfolio. So.
They they are not an operator quote stores, a BG, but they do have a they do own intellectual property of certain brands that do operate stores in our outlets.
And.
And that will continue but.
But that's been that way for you know for years.
Ah so so.
So again, but we're not involved in everything that a b G does like Juicy couture and others I mean, I do think a number there brands do have store potential.
And you know adult you know they'll either operate or find that operator to operate those stores.
And I I from what was your other question I'm sorry, Yeah, Yeah no. The the the the other question David was in regards to the apparel Oh, yeah prevalence of apparel and apparel I wouldn't do you see that changing overtime, yes look I think I think.
Generally we're seeing a lot more interest.
And home furnishings, and and the like we're doing a lot more deals in the outlet sector with that.
No.
Without naming names, but all the home.
Furnishing and furniture folks and and so I think as you've seen that shift.
Generally speaking I think we're seeing a lot of that pick up in the outlet business as well.
Who is typically would has the lower sales is that a concern for you or do you think it's all about.
You know driving the traffic at the center.
I think it's all about driving traffic I have no concern about that at all and usually those are little big boxes. So that you know the rest its leaving versus you know what I'd, rather have a dress barn or no right at our age.
Okay. That's it right. So so would I rather have it so that it sounds kinda trade offs that I think are available.
Available to us I think the mix actually will significantly impact improved because where we're going to end up reclaiming some of the.
No the the older less relevant brands for some of the good or the better brands.
Thanks, David.
Sure.
Thank you. Our next question comes in line of Linda Tsai from Jefferies. Your question. Please.
Hi, I'm your overall leverage is much better than your peers, but net debt to analyze utterance understandably since 2019.
What sort of leverage do you want to target and how would you expect this to Trenton 2021.
Well I think you know our leverage should debt to EBITDA should should decrease right. So you know we're generating cash our development spend is is a modest and you know the excess cash other than debt.
And then will ultimately go to reduce our indebtedness so and we're also sell will sell assets.
So we're still looking to you know essentially.
You know maintain our our balance sheet I mean, that's an advantage.
That we've worked very hard to achieve hasn't been easy and I would not.
No, we're not going to we're not going to blow that.
Brian you want to add anything no, but it will naturally come down next year, Linda just given that the recoup of event a wide relative year over year. So you will see us come back down to a more normal Lipstick award or a level consistent with prior periods is our expectation.
Thanks, and then in terms of the noncore assets that that will be shut it help yet not a material impact.
What timeframe when this happened like would you wait for some stabilization in Hawaii.
Well I just think it's kinda it were in fact were.
We've got an asset now were about the market I mean, we're going to try and do it I mean, we'll see it's not you know this is a you know this is not earth shattering big projects, but in others.
We expect to shed.
You know some noncore assets that won't have that.
Not going to have a material impact on the just just it'll help us run the company better because we won't have to focus on it.
Thanks, and then just one last one in terms of the 85% collections three Q do you think this will stay neutral and then you know the neutral territory in your term or would you expect bigger improvements.
Well I I would expect it to be.
Hopefully better in Q4.
Well, we're just you know we're we're you know were similar in October.
And.
But obviously I would hope that we as I mentioned to you before we.
We still got some some bigger accounts that you know we have not made a lot of progress with.
I'm hopeful that.
You know something.
Positive will happen there. So once that happens then you know.
Then I will jump out.
Thanks.
Sure.
Thank you. Our next question comes from the line of I don't think Jews from Mizuho. Your question. Please.
Hey, good evening, Thanks for taking my question.
So Dave I was hoping you could talk a bit more about the environment for larger anchor box me, specifically Im curious where the demand is coming from and how to spreads compared to the rest of the overall leasing and now you are able to run any any commentary at all whether you leased or any of that space to handle that.
Yes, I believe it or not there are still deals to be done I mean are you know.
Well, we're talking to a department store to take a a couple of boxes over you know.
There's not you know there's not going to be 30 to 40 deals, but there will be no 10 to 15 and you.
You know I think I think our retail community.
Is generally the healthier companies are looking towards the future and believe.
I believe in the <unk> and.
No in having the right footprint and we're going to shrink the the bad stores, but you know I think they're going to look at new opportunities, it's not going to be you know.
We still believe in the mixed use effort that we were undertaking obviously you know we don't have to be in a rush to do it.
And you know, we're not going to build you know we're looking at those plans that.
Maybe had a.
60, 70 to 100000 square feet of new retail small shop space, we're probably not going to program that but you know, we'll we'll make it up with boxes in the lower investment and you know.
Still manage the appropriate returns so there's still opportunity to re lease the space.
That's the matter is we still don't own a lot of it that we want.
You know, but we're not going to we're not going to we're going to pay.
No.
ER appropriate prices for it and you know, there's certainly a gap between the bid and the ask we're really not betting and they're really not asking but you know if.
If we were to bid and they were to ask it would be a big gap.
But you know good real estate will survive, but it's going to take capital great. Operator, and you know, it's not going to be for the fan apart and.
But it's going to be reprogrammed. So you know I, just say something that jumps out like a break.
You know, we'll probably have we always had two anchors, but we had a you know this is the old Sears store that we control.
Well, we'll still do the two anchors there Ah but.
But we probably program to 100000 square feet of restaurants, small shops, and we're not going to do it we'll probably do 25 30, but the cost will go down and we still think we'll have the appropriate oh returns on investments. So there's still stuff to do to improve our portfolio.
And there are still some deep.
Decent demand on you know just box for box.
Got it got it that's helpful are you able or willing to say if any that are leasing has been with Amazon.
I Didnt hear you well could you repeat it please.
Apologies.
I was curious if you are able or willing to do you have any that leasing has been specifically with with Amazon.
There have we had no sign deal with Amazon No.
Okay and then.
All up on the leasing spreads in the quarter down another 400, they slipped sequentially by 4% second quarter in a row was there anything.
Having a disproportionate impact in that calculation during the quarter or when do you think that trough and I guess more broadly how would you think having a vaccine effectively at hand, it will be during your ongoing lease negotiations and the near term trajectory of leases as we build back to pre called the cash flow. Thank you.
Yeah, I think the spread is really mix because we had some.
Boxes that rolled out last year compared to this year. So I wouldn't you know that's a number I wouldn't you.
You know.
Jump up and down whether it's really good or or and I'm not so good as in this quarter, it's really a mix issue.
Because we had a lot of docs activity last year that we and rolled out and this year. It's it's a 12 months later, so it's really more of a mix issue.
And you can see that in our base rents increasing.
Which is probably a little more important stat.
Yeah.
Okay. Okay.
Okay. Thank you.
Sure. Thank you.
Our next question comes from the line of its people from Green Street. Your question. Please.
Hi, good evening Ivan.
I have a few questions related to co tenancy clauses when an anchor tenant temporarily close like the movie theater today could that trigger a co tenancy clauses at your center and then also more broadly just can you help us understand what impact co tenancy clauses that add on financials. This year if any [noise].
Very little Vince.
Yes, this year and we don't expect it to be.
You know meaningful or material or immaterial is let me restate, it and say better it'll be immaterial next year.
Yes, okay.
Okay Fair and then on just the temporary point like if a theater or temporary close is that potentially an issue on that front or what I would be hard to paint brush.
Brush none at all I think it's it's a more appropriate question I think.
You know I think of all of the theater closures.
It's one deal and I can't remember, which one.
That it may affect.
A co tenancy at one of the mills for a few of the boxes, it's it's essentially immaterial.
Okay. Thank you for that.
And then now that you control JC Penney and you're clearly I'm bullish on the on the future there, but how are you thinking about the pace of potential store recapture there at some of your better centers and even you know in order to pursue redevelopment opportunities over the next few years.
Well it hasn't closed and in fact, there was a hearing today, which I did not hear I did not hear what happened but.
To approve or its still not done yet so it hasn't closed.
Im assuming it gets approved it will be sometime later in the month.
Look I, it's complicated way, it's split up between what the operating company owns in the real estate and what.
And what the propco loans, we have rights, we being Simon have rights to recapture certain.
Assets. So it is Brookfield.
But I think we're going to be patient about it because.
Because I think the most important thing right now is just to get it stabilized and position for the future but.
But eventually there are certainly some <unk> some some some stores that probably are not.
Maybe.
Properly position with us, where we do want to recapture the space and I think that's an opportunity but.
No we're not under we don't feel the pressure to do that anytime soon.
But that'll that'll be you know next year's business.
And then when that happens I get to negotiate.
I guess I don't really know what their maybe Rick maybe.
Maybe our guys, maybe Brookfield I'm not really sure how it works, but we will we will we will appropriately do it or.
Ah do it George.
George fairly with all the content constituencies involved.
Okay. Thank you for that.
Sure.
Thank you. Our next question comes from the line of Juan Sanabria from BMO capital markets. Your question. Please.
Hi, Thanks for the time I was just wondering how discussions are going with grocers.
Given how strongly they performed it kinda there their space to date with the corporate and that's transpired at have you seen traction in various different formats and if so what are they most attracted to from from the different types of assets. The time it owns and controls.
You know, it's it's still a we opened one in a specialty grocer in Voca [noise].
Just recently, that's doing very well.
We just made a deal that I don't know that I can announce it that.
We just signed the lease this week to replace a fairway.
The fairway market grocer in anyway.
With a great great grocer. So there you know there or what we're really focused on is the specialty.
Grocers as opposed to the big Damitz ones.
And.
No I think there will be a handful of deals it's not going to be 50, but.
I think it'll be over the next couple of years. There's no reason why we can't get 10 to 20, the specialty ones like the one we did a bulk is great. It's an end cap of of kind of the lifestyle center that we did voca and Ah you know high end.
Gross or.
And come in and get get your prepared foods quality.
You still have to eat a lease of the world that are out there looking to do this.
Business I had a conversation with them recently.
No. That's the same kind of category you know prepared foods specialty grocer or not you know not necessarily a place I guess you could pick up milk, but you know, but more you know prepared foods dine in.
Or get your you know your special.
Consumable so I do think that'll continue to grow.
Great and just one more follow up for me.
Linda talked about acquiring some assets high quality retail.
Have you looked at or any interest and some of the west health centers, given what they're trying to do at the corporate level.
No I mean, they're doing what they're doing so nothing there to report.
Thank you.
Thank you. Our next question comes from the line of Ki bin Kim from.
If your question please.
Thank you so David you provided a palpable bridge looking at the portfolio and alive last year to this year one of the biggest components of that was at $270 million. Your you mentioned.
It's a big number I was just wondering if there's any kind of.
Breakdown you can provide on the call.
Well its a combination as they set up abatements and credit provisions or the credit provisions are mostly bankruptcy is you know how is that split it's you know.
It's it's I don't know 60 40 somewhere in that range.
Is that if that's helpful to yeah, you know again I know I view this as kind of a you know a one or not this is not gonna be routine, but it's kind of a one time.
You know between it took the covert impact so to speak between Q2 and Q3, but it's it's split you know roughly.
Between abatements and credit provisions, which are mostly bankruptcies.
And and Abatements a navy it 60 40 in that range if that's helpful.
It is and are you incorporating.
Ah tenants on the watch list are not bankrupt or not near term bankrupt.
No credit provisions include lots of things beyond just you know pre petition rent or anything else like associated with the bankruptcy.
Okay.
And just given the news today about the vaccine from Pfizer.
Does that make any kind of impact in terms of your mentality when it comes to lease negotiations.
I know, it's early but just curious.
Not really I mean listen I.
I.
You know before the news this week or that today.
I mean, we were we were feeling better that.
Is that we have dealt with a lot of crap in Q2, and Q3 and we're you know we're we're here to.
I know that.
You know, we're and we're here and our cash flows dramatically up and our collections you up.
And we're getting our business back to normal so.
We were headed that way anyway.
But.
But obviously, it's just you know I mean this ER situation is a black Swan times, you know two or three and you know it's it's been sad for you know all of us to have to see what's happened to you.
You know the country or you know good solid businesses beforehand that we.
No we've had to deal with our employees, obviously, all the people infected so I mean I'm just.
You know, maybe there's a little more but.
What's the trays are happening pep in that whatsoever.
Pepin yourself Pepin a step.
No I just think it's good news, let's hope it can you.
Let's hope, we can get out and get done and but no. It's not it's not going to it's not going to affect us because we're mostly dealing with.
So.
You know.
<unk> co., good oriented shutdowns or impact of those shutdowns.
And listen I hope it gives our.
Client base more confidence and that you know that's fine that's good it should.
No it should.
And hopefully, we'll see some benefits from that into 21 and beyond.
Okay. Thank you.
Sure.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to David Simon for any further remarks, okay. Thank you and Oh, thanks for staying late on a Monday night do well.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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