Q3 2021 Simon Property Group Inc Earnings Call

Greetings.

Because in the Q3 2021 Simon property Group, Inc Earnings Conference call.

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I will now turn the conference over to your host Tom Ward Senior Vice President of Investor Relations. Thank you you may begin.

Thank you Alex and thank you for joining us this evening.

Presenting on today's call is David Simon Chairman, Chief Executive Officer, and President also on the call are Brian Mcdade, Chief Financial Officer and.

Chief Accounting officer.

A quick reminder, that statements made during this call maybe deemed forward looking statements within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks uncertainties and other factors. We refer you to today's press release, and our SEC filings for a detailed discussion of 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.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's form 8-K filing both the press release and the supplemental information are available on our IR website at investors that Simon Dot com.

Our conference call. This evening will be limited to one hour for those who'd like to participate in the question answer session. We ask you. Please respect our request to limit yourself to one question I'm pleased to introduce David Simon our cash flow increased to nearly $3 billion year to date consistent with pre pandemic level.

<unk>.

We recorded lead increase leasing volumes occupancy gains shopper traffic and retail sales.

For our space from a broad spectrum of Canada is strong and growing and our various platform investments continue to outperform.

Third quarter highlights from our funds from operation.

It starts with $1.18 billion or $3 13 per share.

Included in the third quarter results were a noncash after tax gain of 30 cents per share from the contribution of our interest in the forever 21, and Brooks brothers licensing ventures for additional equity ownership.

In authentic brands group, we now own approximately 11% of a B G.

A loss on extinguishment of debt of eight cents per share from the redemption redemption of the $1.65 billion of senior notes, our domestic operations had another excellent quarter, our international operations have improved a lot.

However, the quarter was below our budget by roughly three cents per share primarily due to various COVID-19 restrictions domestic property NOI increased 24, 5% year over year for the quarter and eight 8% year to date these growth rates.

Do not include any contribution from the T. R G portfolio or lease settlement income.

And if you did include T. R G.

And international properties, our portfolio NOI increased 34, 3% for the quarter and 18, 7% year to date occupancy was 92, 8%, which was an increase of 100 basis points compared to the second quarter.

Average base rent was $53 91.

However that excludes percentage rent and if you included that they would actually another $7 the BMR.

For the first nine months, we signed 3500 leases for $12 8 million square feet, which was nearly 3 million square feet or approximately 800 more deals compared to the first nine months of 2019 mall sales for the third.

Third quarter were up 11% compared to third quarter 2019 up 43% year over year, our sales are over 2019 peak levels.

These results are impressive in particular, given the lack of international tourism, which we believe will start to increase after the strict restrictions on international travel are lifted beginning next week, our company's focus as you know is cash flow growth.

Which will allow us to fund our growth opportunities and increase our dividend we would encourage.

The analytic community to focus on our cash flow and its growth because there are many levers that contribute to it beyond what is contained in one or two operating metrics is.

A simple case in point, our mathematical open and close spread has declined yet our cash flow has significantly increased leasing spreads are calculated at a point in time, we have studied the leasing spread metric across the various retail real estate companies and highly.

The following spreads are significantly impacted by tenant mix.

Our leasing spreads include all openings and closing and it's not the same space measure. However, we believe many other companies use only the subset who their calculation. We do not include variable lease income and our spread calculation others do.

And Theres no consistency in approach.

We intend to spend the next several months working to achieve uniformity on this.

Metric.

Much like we did for sales reporting.

Although the shopping center sector still does not disclose any sales productivity for its retailers.

Let's keep in mind that all of these metrics.

We need to put in perspective, and we encourage you to take this opportunity to really refocus on the importance of cash flow. We opened our fifth premium outlet in Korea, and our 10th in Japan is under construction or redevelopment activity is accelerating nor.

North Gate station opened a Seattle cracking community ice plat ice class and.

And we have many developments.

Ongoing at Phipps King of Prussia itself, there are many others our share of net cost of development projects is.

[noise] now approaching $1 billion.

Our retail investment platform are performing well very well, including spark any and AVG spa.

Spark outperformed their budgets on sales gross margins and EBITDA.

We're very pleased with the J C Penney results.

The <unk> team has stabilized the business improved financial results.

And we've added private and exclusive national brands to it our liquidity position is at $1 5 billion and.

And there was no outstanding balance on your line of credit.

And we're very excited to announce.

And in fact, his first day as today Mark Rosen He's joined the company.

As the CEO, He's got a terrific background, great leader and we look very forward to working with him as he builds on the momentum.

He has established a sheer panic successes in the U S.

Excellent example of how to better understand our company, we appointed Stanley SaaS or was the interim CEO for near a nearly a year ago and look at the results much like the variety of our investments no. Other company arent industry has the capability to put an executive.

And in the interim role and produce these results.

This is a testament not only to Stanley.

Assignment culture.

T. R. G is operating above our underwriting posted also impressive results for cash flow growth occupancy gains in retail sales, which were 16% higher as you know, we amended and extended our $3 5 billion revolving credit facility.

We refinanced a number of mortgages.

And our liquidity stands at $8 billion.

Hum.

Including $6 nine available on our credit facility the rest in our share of cash we paid a dividend of $1.50 in September that was seven 1% increase sequentially.

Sequentially and 515, 4% year over year today, we announced our fourth quarter dividend of $1.65 per share in cash, which is an increase of 10% sequential sequentially and 22, 7% year over year.

Year dividend will be paid December 31, now we raised our guidance from a 10 70.

210, 80 last quarter to $11 55 to $11 65 per share.

This is 85% increase on the midpoint, that's 27%, 28% growth compared to 2020 results and basically $2 higher than our initial budget this year.

Let me just conclude by saying the following even though our stock has posted impressive year to date returns. We strongly believe it is still undervalued. Our current multiple of 13 times is approximately three turns lower than our historical average and.

Screens very cheap compete compared to the REIT sector at 24 times and in many cases.

Even close to 30, we have unequivocally proven with our results year to date that we've overcome the arbitrary shutdown of our business due to the pandemic and our cash flow has bounced back dramatically, which many had doubt it.

We have growth levers beyond our real estate assets that are unique attributes of our company. We have proven to be astute investors. We have unique business models and diversity of income streams, our balance sheet is industry, leading and.

As strong as it's ever been our dividend yield is four 7% and growing well covered higher than the S&P yield of one 9% and the REIT average of two 9% and we have the potential to perform very well in an inflationary cycle.

We're now ready for questions.

Thank you at.

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Our first question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.

Hey, good morning, or good afternoon, guys, sorry, it's been a long day.

Congrats on another really good quarter, David I did want to maybe just understand a little bit more about the sequential.

Slowdown in maybe MTR jeans domestic portfolio in the international portfolio is there anything specifically that would drive that and I'm really only asking the question in terms of how we should think about for modeling because I do recognize that.

No no no youre wrong. It's we were just showing our share so compared to the gross number last quarter.

Okay.

So no. It's a good question, but it's just our share.

Thank you very much for that clarification.

I'm glad you pointed that out thank you.

Got it and then I did want to maybe just understand a little bit more about the income from unconsolidated entities just to be clear like last quarter. The noncash gain was included in that number is that right.

Yes, yes, okay.

And then maybe we can just talk about why that number went down a little bit I do recognize depreciation went up pretty significantly versus the prior quarter.

Yeah, obviously seasonality would dictate that the retailers were doing pretty well and then anything that we should think about in that number as we look going forward.

No. It's just it's a.

It probably most most impacted by our European and international business as I mentioned earlier great.

Great. Thanks, that's it for me, Thanks, again and congrats on another good quarter.

That's it.

Our next question comes from the line of Craig Schmidt with Bank of America. Please proceed with your question.

Great. Thank you.

Notice the going from the second and third quarter you increased your.

Total redevelopment about $83 million.

The total investment, but that does not include taubman.

Have you have you started to make any of the.

Investments in terms of carbon redevelopment.

Yeah, I mean, it's it's a progressing the way we thought it would.

There's a big Master planning in the works on.

Sure Creek, but that'll be several years in the making but.

There's there's some good stuff happening in that portfolio as well.

Great and then.

How should we think about the your your retail investments in terms of I mean quarter to quarter. It kind of moves around I mean should we look at it on an annual basis or.

How should we get a better handle on what you're being able to been able to produce out of your investment in retail.

Well I think you should.

Think about us as a.

A company that can add value to what we invest in and.

You should always you should never worry about quarter over quarter or yeah, you should look at annual results and compare them historically.

So.

Uh huh.

Yeah, I'd just say that's generally.

But I think we're I think the most important thing is correct. We're just a different company.

Then.

Then.

What most think of US I mean, we have lots of avenues for growth and our investments in retailers and other companies.

It has proven to be extremely successful and.

It would create.

You know some some variability quarter over quarter, but year after year I think.

When you look at our return on investment return on our EBITDA for those businesses actually quite outstanding.

And if you look at the valuations that.

E Commerce companies are getting for their dot com businesses.

We've got an embedded value here, that's pretty exciting so.

I would never worry about one quarter over another.

No I'm, particularly thinking about the 11% interest in APG and what people say that might go for on an IPO.

That's very impressive.

Yeah, I mean, I, just yeah look where we're just not your.

We're more than just a.

You know, even though were you call US a mall company I think we've proven to be beyond that and.

And.

And that's what I would encourage you to focus on.

Okay. Thank you. Thank you.

Yeah.

Our next question comes from the line of Feedstocks, all with Evercore ISI. Please proceed with your question.

Thanks, Good afternoon David.

It was nice to see the occupancy up 100 basis points sequentially I'm. Just wondering if you could discuss a little bit about your leasing pipeline and backlog, maybe where do you think occupancy ends at the end of this year and you know what your expectations are for a recovery in occupancy.

Well you know I think it's going to take a little bit of time to get back to where we were pre pandemic, but.

I think what's exciting to see is that when we're talking to our folks there.

As you've seen a tremendous amount of demand.

<unk> never been busier lots of new retailers not a lots of new uses.

And.

60.

I think the action is in is in our portfolio. So.

We'll have another increase this quarter upcoming and then we will increase our occupancy next year.

I don't I can't you know as you know we never give specific.

Guidance on that but the demand I E.

Ah strongly would tell you that it's very good so and it's across the board I mean, it's.

So high end retailers, it's the value oriented retailers.

So we're very pleased pleased with what we're seeing.

Great. Thanks.

Thank you.

Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Hi, good evening, and nice quarter I guess, maybe just another question on the retailer part of the business I was wondering if you could go through from a REIT perspective is there a max how big this business how big this can be as a part of your business and just what's the current goller Ultimate plan for your own brands is it just to grow the existing brands acquire.

They're more sell it.

Just any thoughts on our plans going forward.

Well listen we're obviously.

You know very dedicated to two.

Being a REIT and staying a REIT and all of these businesses are taxable REIT subsidiaries. So.

And you see that.

This quarter in particular, you'll see that.

The big tax expensive debt.

That is flowing through our P&L.

But.

Because we tend to buy these and partnerships we have really.

You know our runway two to.

To continue to grow that business.

<unk>.

Not to mention that we'd still have our spec out there that you.

As a in a sense a vehicle for growth.

So.

I'm optimistic.

That you know based on our track record, we're going to continue to.

Fine.

Other investments.

Whether it's retail or similar.

Its related businesses that will continue that.

Add to our.

Unique comparable and and we'll take it from there.

Got it Okay and then maybe just a quick follow up I think we'll learn more once the 10-Q is out but until then just on that tax number in the quarter could you clarify if that was just related to that retailer income in the taxable REIT subsidiaries or if there was anything one time included.

Oh go ahead, Hey, Caitlin its Brian Theres actually a one time fee.

$48 million number coming through there from the AVG transaction that we had in the quarter. So you've got to bifurcate. The two two numbers is a 48 and then the rest is just our normal regular occurring operational tax accrual.

Okay. Thank you.

Thank you.

Our next question comes from the line of Michael Berman with Citi. Please proceed with your question.

Katy Mcconnell on with me as well.

David Good afternoon, I was wondering if you can maybe delve a little bit deeper into the retailer environment in the sense that we know sales are extraordinarily strong as everyone's gotten back out and enjoyed buying things again, but the retailers are struggling a little bit the heartbeat below the sale of flying they're struggling with staffing.

They're struggling with keeping product up to date most of it on.

Ships. So how are you sort of thinking about it from two sides. One the retailers that you own and sort of dealing with some of these issues, where they're also dealing with their E com problems too.

And also from the standpoint of how you think retailers are going to approach sort of the store openings next year, given maybe some of the product, giving some of the staffing concerns and how all that sort of melts together now.

You're more and more sitting on both sides of this equation and really understanding some of these pressure points.

Well.

Let me just tackle that.

The backlog in getting product to the to the stores, which does have an impact on us.

Just with respect to <unk>.

Our our tenants and then as well as the brands that we own.

There's variability I mean, everyone is pretty comfortable or confident I should say confident that.

They're going to get the product in there for the holiday season, but I would tell you that there is no guarantee so there'll be some variability.

Absent that we probably would've felt you know.

A little bit better going into the fourth quarter, but we were cost we're cautious on it because we just.

Just don't know and it's out of our hands, though.

I did I did throw a shout out to Stanley only because by the way I trained them, but just don't forget that.

But he did tell me that he was going to.

If he had to go to that.

The port of L, a and unpack boxes to get them into the Penny store. He said he was going to do it.

I said, well that's a great idea I'll do it too so we're on call to help.

So that's that I mean that there is variability I don't know.

But.

I think generally people are reasonably.

Confident that they'll get they'll get their product in for <unk>.

For Christmas now with respect to.

Employment is this is well beyond well beyond retail.

Yes.

I mean, it's a it's a.

With all the political back and forth going on it's really not talked about.

And.

Just from a.

From a CEO point of view and just someone that's worried about.

Growing our overall economy, because obviously.

Were correlated to GDP growth.

We've got to figure out whatever is causing.

The lack of employment growth.

Got it we've got a quote get to the root of it because it's not clear to me that there's a big focus on it.

It has finally getting to your last question.

Thankfully, Michael I have not seen it.

Impact.

Folks open to buy or their growth could it eventually the answer for sure, but we have not seen it yet.

But but but the lack of.

Employment is an issue, especially.

And and some of our retailers are you know, they're doing one shift there they're increasing that.

The.

The salaries of the people there are less part time, so they're they're they're they're combating it maybe in it and a good long term.

Way, because they are raising salaries and getting more loyalty out of that but.

But you know the increase in.

Our restaurant demand has been phenomenal and that that's still area.

I worry most about is just.

Ultimately, whether the employment picture could slow that demand I don't know right now, but it is a concern.

And so when you when you throw all of this stuff into the pot you, obviously have a lot more earnings and cash flow drivers at time and today than it's ever been in your history.

Does your disclosure could be able to get credit and for the street to sort of value things to the point, which you are talking about your stock being undervalued is.

Isn't it necessary to like sort of break down some of these businesses or to give a little bit more information within the supplemental so that people can really identify each of these drivers from more operating businesses too.

The more rent business.

Because there's like little pieces like <unk> from investments on a trailing 12 month basis in the credit metric session section and it would be really good to get that on a quarterly basis and all the like.

Are you stepping back I know you've talked about the lease spreads but is there an opportunity for <unk>.

Sort of revamped disclosure to give the investment community more of that level of detail overall.

Well I mean, it's.

We're not going to rule it out.

It is it is.

Our property domestic property business just to put it in perspective Michael is.

Round, 80%.

Of our.

Cash flow earnings However, F F O. What however, you wanted to.

You know what define it. So then we have the 20% other stuff.

And I just worry that if we do get into that we'll spend more time on the 20% now 10 years from now it may be different.

Five years from now it could be different the 80% could be 50 and then.

Agree a 100% with your.

Your encouragement or point of view that it needs to be better.

Better articulated the other option is we could sell our dotcom business are a huge number and like some of the others out there and then then youll.

Ascribe a certain value to it.

Yeah.

We wouldn't rule that out so.

You would never embark business to begin with you and I have gone back to back on that about selling interest in malls.

You never want it it would be in the market you want to get into cash flow and the value.

I mean, I'm not terrible seller is as a as I've admitted.

In any event.

I think you know look I'm excited about what we're doing.

I do think it's still it's still.

It's more it's a tail wagging the dog, but you know.

It's an important tail and it's a beautiful tail.

And then wags nice and is very friendly and.

You know as we grow that I think I think your.

I think what you say is certainly appropriate.

Alright.

If we have time I'll queue up for a quick guidance on later.

Okay.

Thank you.

Question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Hey, good afternoon out there David.

Realize that you and David that you had Stanley are both a union longshoreman able to work on and the Allied long Beach gear. That's that's.

Pretty impressive.

Well you know.

We'll do whatever it takes to get product into our.

And through our stores.

Well I think if you know this well.

Alex you could join us.

I you know it.

If.

You didn't work is pretty tough work unless you are.

And that can get to the crane operators those guys make good money so.

<unk>.

But question for you and it sounds like Tom We got we got two questions. So I love It David.

David It sounds like in your opening comments, you said that you were a little bit behind budget because of some of the COVID-19 closures that you are still experiencing despite that even backing out the a b G. Intellectual property game, which is awesome you guys don't handedly beat So I know you Guy I know David would you like to run your career really hard and and.

Weapon and do all the fun stuff shout get your team excited to win but still it's hard to say that you guys were under budget. When you beat consensus it's much and it sounds in your answers to to Michael on on store openings and labor and all different things it doesn't sound like they're really any headwinds it sounds.

You guys were just really rebounding strong so what was the below budget related to as far as.

Yeah, Yeah, Alex that was just our international ops. So so if I if I didn't say the word international just because I misread it on the script.

I said it yeah. So it's just it's just international as he only.

The only business that I.

I would say is under under our initial budget.

For 2021.

Okay. So then just drilling into that international part what are you seeing are you seeing anything like the rebound that we've seen in the U S. Whether it's Asia or Europe or are the consumer rebound trends.

Very different.

Yeah, that's a good question and I and.

Its by country and assess so theres no.

Simple answer then I would say to you.

So very much how COVID-19 is impacting that country.

As you know Europe was much generally.

And in France, and Italy much more.

Stringent on how they open and as you know we are friends had clay peer had to deal with almost a.

Which by the way L a county almost dead, but.

We'd have to enforce whether or not people had vaccine cards to let them in the mall, which thankfully.

Our cooler heads prevailed.

But.

It really is a country by country, we're seeing a little bit.

Decent results in the European outlet business.

And clay peers, feeling more confident about what they are seeing.

But I would tell you.

Asia generally know, Japan is pretty tough, but that's okay.

They've had a pretty strict.

Shutdown Korea is doing just fine so.

I'd say generally the U S is clearly outperforming.

Other you know just from retail sales than other parts of the country other parts of the world I should say.

And then on your international folks, though are they telling you like yeah by January one.

The rest of Asia, Japan, Europe, France, all or a part of all the different countries in Europe, everyone should be back or is there just to consider continued concern that those countries are going to continue to plan on on reopening and ease of COVID-19 mandates such that maybe.

Maybe 'twenty two is is as greatly impacted on the international.

Uh huh.

I am hopeful 'twenty, two will be a better year for them just like 'twenty one was for us so.

But you know, but they'll be more proactive general when I say day, I mean again, it's country by country, but.

In many spots there'll be more proactive with COVID-19, if COVID-19 spikes.

And then just a quick terms of restrictions I should say.

Just a quick question for Brian on.

On the new line of credit, where you switched over from LIBOR LIBOR to sofa.

The the net end of the day the economic impact you guys are still are basically paying the same cost or this switchover you guys are ending up paying a little bit more maybe it's a little bit less I don't know.

No. It's a push it's an economic push that was the whole design and so for Alex.

The intent was to be economically neutral.

Okay. Thanks.

Thank you. Our next question comes from the line of Mike Mueller with Jpmorgan. Please proceed with your question.

Yeah, Hi.

Just wondering outside of the 22 cents a net three Q1 time items can you break down what drove the guidance increase for the balance of the year.

Yeah.

Can you repeat that Michael.

Yeah, you had net 22 cents of onetime items that you called out and guidance went up I think 85 cents. So what drove the other 60 63 sensors all of the increase if you could break that down how much retailer versus domestic comps.

We don't.

We don't break that down but it was.

Combination of both.

Got it.

Okay that was it thank you.

Thank you.

Our next question comes from the line of Juan Sanabria with BMO capital markets. Please proceed with your question.

Yeah.

Alright.

Just hoping you could walk through maybe the quarterly volatility I know you told cracking up to look at quarterly.

Susan I apologize for that.

Given the movement. It does seem like last quarter. It was reported that share this quarter is that share.

And the retailer NOI dipped in a corporate NOI dipped as well.

The guidance went up so I'm just trying to put these pieces together and maybe get the components for those two NOI pieces retail <unk> corporate and then tying that back to the guidance question that Mike just asked.

Yeah.

Well one you got to remember here looking at our annual numbers here or even quarterly numbers. There were a variety of retailer businesses that we didn't own last year. So that's part of this noise when you're looking at it year over year quarter over quarter. That's a big piece of this jcpenney didn't close until the year end of last year, which is a big driver of this so you got it.

Population, if you would.

Yeah, I'm just focused on sequential because the numbers did go down or it seems those two buckets on a share basis.

The retailer investments NOI in our corporate and other NOI.

Sure you have just seasonality and timing in there on the retailer side of it and then corporate another the bigger changes that we recognized last quarter, a larger amount of termination income.

Yes.

Okay.

And then just more of a conceptual question on on retailing.

On different pieces of this.

Retailer landscape you have.

Licensing or our traditional licensing intellectual property licensing and the traditional retail like how do you think.

Of the multiples that you need to plan for those or the stickiness of the cash flows I Wonder if you could talk about typical margins just trying to get a sense of.

And maybe where the EBITDA is coming from between those two pieces and how you think about.

Those two pieces as well, whereas the EBITDA coming from.

The rehab between the licensing and traditional retailer yeah, because you have the AVG investment which is.

This is zane.

Well a b G.

<unk> owns the brands a lot of brands in the license income.

The retailers run e-commerce and operate stores. So it's.

It's essential that like any other retailer.

The valuation of that what we should just be the way you look at you know any other public company retailer I will tell you.

The day I mean from an EBITDA multiples retailers are more valued at a higher EBITDA multiple and Simon property group.

And where does that better margin business do you think the licensing or the traditional retailing.

Well the licensing.

That's it.

That's a.

Licensing business.

Are you amortizing the cost of buying a license or not so the brand. If you don't they have a higher margin but.

Gross margins are good retailers are in the 60 plus range.

Yeah.

Yeah.

Okay. Thank you.

Okay.

Thank you. Our next question comes from the line of Vince <unk> with Green Street. Please proceed with your question.

Hi, good afternoon.

Our same property operating expenses trending versus 2019 are you experiencing any pressure from wage inflation or extra cleaning costs given most of the retailers on a fixed cam basis.

Not not not currently no.

I think that I think.

We'll see we'll see how it impacts 'twenty two but not.

Rising cost.

From our standpoint, and 21 shouldn't be all that material.

Yeah are you much higher than where you were in 19 or is it you know kind of.

Adjusted for occupancy changes like margin more or less the same in your mind are kind of ratio.

Well other than the drop in occupancy I think I think.

In terms of operating is probably pretty similar to 19.

And are you thinking about.

Go ahead sorry.

No that's.

That's it.

And I was just there or are you thinking about the way <unk> structured any differently now given the prospect of higher inflation or is it just curious to get your thoughts there.

Not really no I think.

You know the fixed Cam and and obviously it grows in many cases tied to CPI.

It's just an ease of doing business with the retailer and I don't see that changing.

Got it thank you and maybe one last quick one for me could you just share your latest expectations for domestic property NOI growth from the year I think the last time you formally said anything was at 5% at the beginning of the year and I think it's clearly higher from there.

It's going to be higher Vince.

[laughter] any number you can throw out there for us.

Ah well now.

No.

We look at these things on an annual basis, but.

I'd hate to put a number in but we're gonna be really.

Based on where we were.

And what we guided to.

Well, we should do.

Double it more or less right.

You know more or less.

So yeah, I mean, I think why do we guide to 4% or something like yeah. So we'll be we should be in that range that range.

Okay I appreciate that thank you yeah, thanks way to get it out of events where to go.

Our next question comes from the line of Floris Van <unk> Congress.

Compound Compass point. Please proceed with your question.

Hey, Thanks, guys. Thanks for taking my question I, sometimes wonder whether people are not.

Not seeing the forest through the trees.

I mean, you're you're you're.

Your guidance for the year is 60 cents over 'twenty to 'twenty two estimates right now for consensus which is yeah I suspect those numbers are going to have to come up drastically let.

So let me let me get to my question here.

It's about the leasing environment and I'd love to get your color on.

What youre seeing obviously that you talked about the leasing spreads being negative and again those are backwards looking because those deals were negotiate it call. It.

Three to six to 12 months ago.

Hum.

Obviously, when we are in a different environment. There were many articles written about tenants wanting more turnover a sales a rent based structures are you talked about that in past quarters about our offerings some of that but actually our sales now are in that.

Excess of 19 levels comfortably X axis apparently.

Are you actually capturing more rent and what do you think that's going to do for your overage rent and also how is that impacting your negotiations with tenants do they want to go back to the fixed rents with the with a smaller turnover base.

To get your thoughts on that.

Thank you for so I would say.

Look the our overage rent is going to be Cigna.

Significant this year.

But I do want to.

Put I want to underline we still you know do.

Do not have international.

Tourism, So we think there's another.

And you know and I don't believe now.

The rules of.

Who can come where and how and whatever vary.

Very confusing having made my my own two international trips.

Confused on what I have to do to go from one place to the next but.

Next week, there is a lifting of international tourism, but I think it's we'll see whether it has any impact this year was kind of I doubt it but.

Even with overage rent, having a very good year this year.

We still think that.

There's another leg up if we get kind of the international tourists.

That we that we haven't seen for a couple of two or three years right and.

Now the strength of the dollar may offset that to some extent, but.

We'll see.

On your question about <unk>.

That's what I think some of the folks that.

That you know.

Wanted to tie.

Their rent too and we did it in a select few cases not a lot.

Yeah. They may suddenly thank you know maybe they should do another kind of.

Traditional to go back and do a basic skill, but by and large for us there's not a lot.

I'd say the negotiations about.

The structure of the lease.

And overage rent I call it overage, but with our overdrive. Some breakpoints, it's all pretty it's all I'd say pretty consistent so not not a huge change in what's going on there.

And David maybe if you could.

Touch on the specialty leasing environment as well, obviously last year when a lot of your malls were closed clearly you couldnt have much kiosk income are obviously.

Obviously billboards Billboard income is really driven by.

By economic growth.

So that presumably was very low last year.

What do you see I mean this is a you know it could be up to 10% of your NOI I mean, how do you see that.

Part of the business.

A forming as a as we head into 'twenty two.

I think I think we're gonna have a very good year in 2002 on that side.

Because again it it.

There's just a.

Better appreciation for our kind of product and demand is good there.

And growing and traffic is.

Still reaching.

Previous level, so I think they're going to have a very good year. This year.

But a better year in 'twenty two at least from our initial kind of review of that business plan.

We just had recently.

Great I mean, maybe if I ask what I mean, I sort of was asked before but certainly the backlog of leasing can you give us any more insight I know somebody asked also asked a question about that but certainly in terms of you know.

What that could mean in terms of occupancy gains in our in 'twenty two because clearly that's that's the easy income if you will because they're all drops down to the bottom line.

Any sort of backlog that youre working with right.

Leasing it.

It's busy.

And stretch to the to the to the Max I would imagine.

Listen I always worry they they tell me what I want to hear.

But what they're telling me okay, yes.

And what I'm seeing in my own one.

Having to deal with a few.

Retailer.

Space demand.

Demand is good you know so I think.

Listen the world is uncertain.

As as all get out right I mean, we all know it's just a it's a therapy.

Interesting time, the last several years in this in the future as it is no different.

But for US the good news is the demand for our product is good.

And our folks are busy and they're hitting the streets and making deals so.

Again, we never given occupancy number, but I would I would be very disappointed if we didn't have an uptick in occupancy next year.

Thanks, David that's it for me.

Thank you.

Our next question comes from the line of Greg Mcginniss Scotiabank. Please proceed with your question.

Hi.

David maybe asking <unk> question, a bit differently and doing some back of the napkin math here. So <unk> per share guidance appears tend to see a slowdown in Q4 versus Q3 after adjusting for the noncash items.

All of us understand what items might be impacting those expectations.

Your.

Versus what you were doing or what we're doing.

You have 291 Q3, if we take out the noncash items and then that kind of assumes to 70 to 80 in Q4.

Now, we'll see what we earn.

We don't we don't really we don't really look at it quarter by quarter.

Alright, and then maybe shifting gears, a little bit to the percent rent leases.

First I'm just trying to understand what portion of leases signed this last year are tied to percent rent deals how does that compare to history.

Then you also mentioned that overage rent will be significant this year is there going to be seasonality associated with that we're just trying to understand if we should expect a sizeable pop in Q1 next year as Christmas sales and associated at Renard calculated or if it should be smoother throughout the year.

Well overage rent does is impacted by holiday shopping so.

There is some seasonality to it.

We don't give out the specifics on.

What deals are percent versus fix though.

The.

Not a very big number I mean.

The.

Overwhelmingly a high high percentage of our.

Leases are fixed and.

And sometimes we have unnatural breakpoints, which are you know.

We will get we can get into the mechanics of that later if you'd like.

We do.

Maybe and then Covid this as well.

There's a few a handful with some retailers, where we maybe lowered the fixed but we got.

You know greater upside on sales, but you know 90, some odd percent of our leases or fix for it.

I think I answered your question unless I missed something.

And so if we think about.

How leases are getting signed now coming out of Covid and.

Should we expect to see those you know what that percent rent number go down and maybe it is just base rent number start going back up again.

Well, yeah on rollover sure over time, I mean again.

It's a function of when leases expire.

Right. Okay. Thank you.

Sure.

Our next question comes from the line of handle thank T. With Mizuho. Please proceed with your question.

Hey, David Good evening.

How are you. So you mentioned earlier the stock being cheap 13 times <unk> I get it and you put out your long term average, but I guess, the one missing piece that we havent seen as the asset value clarity I guess I'm curious where are you pegged a mall cap rates today was there anything in your recent refinancing a negotiation that was informative about.

How the lending community is viewing more values and how would you characterize the market appetite for refinancings.

Refinancings today thanks.

Good I think we did how many how many financings that.

We've done 22, this year almost $30 billion the market is open.

From a refinancing perspective isn't supportive of high quality assets.

Yeah look I think you know.

I'd say.

We're a assets there there is no I mean I've discussed this before not to bore you, but yeah, there's not a lot of buyers and sellers realize how valuable they are and they want a really low cap rate.

No.

Theres no way asset.

In this country.

That would sell for anything.

Above a five cap rates in my opinion and my humble opinion.

No I'm sorry.

Appreciate that I was looking also if theres any thing from the other side that you could share from how are the lenders are valuing or any any right now.

I thought you were in equity analysts what do you care about lender.

[laughter] values, which the loan as described.

Okay.

I mean look there there are they look at that deal cash flow coverage.

The metrics that they're using more and more importantly, and sponsorship of the source.

Okay.

I guess I'll move on to my next question. Thank you, though I wanted to ask about the pricing and demand for your JC Penney boxes any anything you can share on that thanks.

Well the ones that we own we're not selling cars.

<unk> is performing terrifically well.

Okay.

Thanks.

Alex we have time for one more question. Please.

Thank you. Our final question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.

Hi, Thanks for taking my question.

Sure.

In terms of the $7 of variable rents that weren't included in the base minimum rent.

When would you expect to see improvement in that number and how much of that $7 could be moved to fixed.

You mean improvement or just when it goes to fixed essentially right well I guess two separate questions. When it comes to fixed and then when would we see like an overall improvement in base minimum rent given the moving pieces.

Well I mean, it's it's it's a lease by lease to build that number up I mean demand is picking up so.

We're focused on driving our cash flow, but again as I, maybe you missed my maybe it wasn't overly compelling but you missed my opening.

Remarks in that.

I would recommend again I know.

I'd recommend you just kind of look at the cash flow of the company and not overly.

Worry about that.

The trick here or there it just it all kind of manifest itself in the cash in terms of when.

That will end up in base rent is really as I said earlier, it's just going to be a function of when that particular lease rules when it expires.

And traditionally when that does.

We're usually pretty effectively trying to garner as much of that overage rents or that percentage rent above the breakpoints back into the.

Base rent.

Got it and then store closures are way down from prior years and given the importance of holiday to retailers, but also challenges around supply chain. Do you think this is potentially a threat to some of the smaller lower credit retailers.

I don't.

Think so and I honestly the credit profile of.

You know the retail community is.

Not bad I mean, there's always going to be.

You know theres always going to be a few out there, but I would say generally the.

Credit profile is pretty pretty not gonna look pretty good.

So.

The retailers are always pruning the portfolio.

And so on but.

I don't I don't think the supply chain is going to cause.

You know, Mike Unfortunately caused a local.

Mom and pop.

Some.

Some stress, but I don't think it'll cause you at all.

A regional or a bigger change.

But financial Calamity.

Thank you.

Yeah.

Ladies and gentlemen, we have reached the end of our question and answer session. I will now turn the call over to David Simon for closing remarks.

Thank you and I appreciate all the questions we'll talk soon.

Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

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