U.S. Markets closed

Edited Transcript of SPG earnings conference call or presentation 30-Oct-19 12:30pm GMT

Q3 2019 Simon Property Group Inc Earnings Call

INDIANAPOLIS Nov 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Simon Property Group Inc earnings conference call or presentation Wednesday, October 30, 2019 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brian J. McDade

Simon Property Group, Inc. - Executive VP, CFO & Treasurer

* David E. Simon

Simon Property Group, Inc. - Chairman, CEO & President

* Richard S. Sokolov

Simon Property Group, L.P. - President, COO & Director of Simon Property Group Inc. - GP

* Thomas Ward

Simon Property Group, Inc. - SVP of IR

================================================================================

Conference Call Participants

================================================================================

* Alexander David Goldfarb

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst

* Caitlin Burrows

Goldman Sachs Group Inc., Research Division - Research Analyst

* Christine Mary McElroy Tulloch

Citigroup Inc, Research Division - Director & Senior Analyst

* Craig Richard Schmidt

BofA Merrill Lynch, Research Division - Director

* Ki Bin Kim

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Michael Bilerman

Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research

* Michael William Mueller

JP Morgan Chase & Co, Research Division - Senior Analyst

* Nicholas Philip Yulico

Scotiabank Global Banking and Markets, Research Division - Analyst

* Richard Hill

Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS

* Robert Jeremy Metz

BMO Capital Markets Equity Research - Director & Analyst

* Stephen Thomas Sakwa

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst

* Vince Tibone

Green Street Advisors, Inc. - Analyst of Retail

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2019 Simon Property Group Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Tom Ward, Senior Vice President of Investor Relations. Please go ahead, sir.

--------------------------------------------------------------------------------

Thomas Ward, Simon Property Group, Inc. - SVP of IR [2]

--------------------------------------------------------------------------------

Thank you, Sydney. Good morning, everyone, and thank you for joining us today. Presenting on today's call is David Simon, Chairman, Chief Executive Officer and President. Also on the call are Rick Sokolov, Vice Chairman; Brian McDade, Chief Financial Officer; and Adam Reuille, Chief Accounting Officer.

Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors.

We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements.

Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing.

Both the press release and the supplemental information are available on our IR website at investors.simon.com.

For our prepared remarks, I'm pleased to introduce David Simon.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [3]

--------------------------------------------------------------------------------

All right. Good morning. We had a very busy and productive quarter and very pleased with our financial results. Our results of the quarter were highlighted by Funds from Operations of $1.081 billion, or $3.05 per share. We achieved this consensus this quarter even with certain unanticipated retailer bankruptcies, reduced property level NOI from the acceleration of properties undergoing significant redevelopments such as Northgate compared to our budget.

Reduced overage rent from tourism spending, including the negative impact from the continued strong U.S. dollar and lower distribution income from certain international investments. We continue to grow our cash flow and report solid key operating metrics, comp NOI increased 1.6% for the third quarter and total portfolio increased 1.3% for the quarter. Portfolio NOI was negatively impacted by 50 basis points due to properties undergoing significant redevelopment and the unfavorable FX impact due to the continuing strong dollar. Year-to-date comp NOI has increased 1.7%. Retail bankruptcies negatively impacted our comp NOI by over 100 basis points in the third quarter.

As a reminder our Japan Premium Outlets and designer outlets in Europe produce over $1,000 in retail sales per square foot. And all of our 26 international outlets, excluding Canada, which is in our, basically, North American portfolio, generated comp NOI growth of 6.3% on a constant currency basis, which, as a reminder, is not included in our comp NOI. And if you did that we'd be well over 2%.

Retail sales momentum accelerated in the third quarter, reported retail sales per square foot for malls and outlets was $680 compared to $650 per foot, an increase of 4.5%.

Leasing activity remains solid, average base minimum rent was $54.55.

The malls and premium outlets recorded leasing spread of $12.10, an increase of 22.2%.

Our malls and outlets occupancy ended the quarter 94.7%, an increase of 30 basis points compared to the occupancy at the end of the second quarter. And again, candid, bankruptcies affected that by roughly 60 basis points.

On an NOI-weighted basis, excluding our international outlets, which I discussed above, reported were as followed -- reported retailer sales on an NOI weighted basis is $867 compared to $680, per foot, NOI weighted sales growth was 6.1% year-over-year compared to 4.5%.

As mentioned, occupancy is 95.8% compared to 94%. Average base minimum rent is $73.14 compared to the $54.55 number, and our weighted comp NOI growth would be 2.7%.

We started construction on our new Premium Outlet in Tulsa, Oklahoma, scheduled to open in the spring of 2021.

Construction continues on 4 other new international outlet developments: Malaga, Spain; Bangkok, Thailand; West Midlands, England; and not to forget, Normandy, France, which we expect to be a terrific new outlet center.

We had a very busy quarter in terms of completion of redevelopment projects. In particular, expansions on several of our high-performing international outlets, we opened

(technical difficulty)

including 2 in South Korea and 1 in Vancouver -- our Vancouver Designer Outlet in Canada.

During the quarter, we started construction on our significant redevelopment at Tacoma Mall. And at the end of the third quarter, we have 30 properties across all of our platforms in the U.S. and internationally with a share of the net cost of approximately $1.4 billion. And as a reminder, this is being funded by our internally generated cash flow. We announced, and as you are aware, we closed on our new venture with Rue Gilt Groupe to combine our Shop Premium Outlets marketplace with RGG's highly successful, Rue La La and Gilt creating a new multi-platform dedicated to digital value shopping.

We're very excited to expand our omnichannel capabilities in partnership with RGG, which is a very profitable company with significant sales.

Our industry-leading capabilities in the physical outlet space combined with the RGG's exceptional e-commerce success will give shoppers enhanced access to the world's best brands and most compelling deals, both online and in-store. You saw the announcement this week regarding strategic investments. I won't belabor that other than we're very excited about the transactions that we're investing in: Life Time Fitness, Pinstripes, Soho, PARMs, Sports Illustrated, Allied Esports.

You can now, for those of you that really like gaming, please enter the Simon Cup. We encourage you to do so. You'll have a lot of fun. But I will not be funding the analysts if, in fact, one of you win.

Look for us to open Sports Illustrated sports gaming restaurants in the future.

So now balance sheet. We completed 3 tranche senior notes totaling $3.5 billion at a coupon rate of 2.61%, average weighted terms of 15.9 years. Our offering mark industry milestones prior to our issuance no real estate company had ever issued, $1.25 billion of 30-year bonds in a single issue -- issuance and the interest rate for each of the tranches was the lowest achieved by any real estate company for similar notes.

We, in October, completed our 4 early redemptions of our senior notes, totaling $2.6 billion, and during the quarter, we repurchased 1.15 million shares. After the bond redemptions, our liquidity stands at $7 billion, balance sheet's in great shape.

We announced a dividend of $2.10 per share, a 5% increase year-over-year. We'll pay $8.30 per share in dividends in 2019.

That's an increase of 5.1% compared to all of last year. We've grown the dividend more than 8% over the last few years.

And as a reminder our annualized dividend yield is greater than 5%, which is more than 350 basis points higher than the 10-year Treasury, which is basically at a record spread. We're more than 1.5x covered in terms of our dividend coverage for our FFO.

And we paid out, since we've been public, now well over $30 billion, a lot of dough. Now just to update finally, guidance is $12 to $12.05, which is an increase of $0.03 from the bottom end of the range, after giving effect to the $0.33, that extinguishment charge as we outlined for you when we did our notes deal a month or so ago.

So that's it. We're ready for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from Craig Schmidt with Bank of America.

--------------------------------------------------------------------------------

Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [2]

--------------------------------------------------------------------------------

I just wanted to touch a little bit, I mean, you've been very active in terms of developing your experience with tenants for your assets. And I just wonder, how high could you be taking this penetration in the next, say, 2 or 3 years?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [3]

--------------------------------------------------------------------------------

Well, I would say to you the level of interest and new retailers in this category continues to amaze us. They actually are very interested in our real estates. So despite the negative narrative that you see from the general media, they all want to locate in the mall and in our real estate. And I think we're just at the beginning of that, so I continue to expect us to redevelop our assets with those kind of retailers significantly over the next decade.

--------------------------------------------------------------------------------

Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [4]

--------------------------------------------------------------------------------

Just thinking about the Southdale where you're replacing a Penny's with the Life Time assets. What kind of lift could that give to that center?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [5]

--------------------------------------------------------------------------------

Significant. I mean, they'll have 5,000 members. They are great for the community. They are, without question, the best operator of Life Time resorts in that whole industry. They blow everybody away. They're great partners, good friends, and we expect continued growth there.

They reinforce our real estate as a place for the community, and I couldn't be prouder working with them side by side in this partnership.

--------------------------------------------------------------------------------

Thomas Ward, Simon Property Group, Inc. - SVP of IR [6]

--------------------------------------------------------------------------------

They also have a world-class shareholder base. So that's -- as we create, kind of the next generation of our company, we're associating ourselves with world-class entrepreneurs, partners, investors. We could sit here and talk about selling an outlet for $1 million. But I encourage you to think about our company differently.

--------------------------------------------------------------------------------

Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [7]

--------------------------------------------------------------------------------

Okay. And then just lastly, I know we've touched on this. You were saying the human resources and permits are probably more regenerated than your access to capital. But are you thinking you might have to accelerate some -- your capital spend in the next few years? Just given the redevs and developments you're doing? And you seem to continue to be on pace for whether it's the new developments in the European outlets, et cetera?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [8]

--------------------------------------------------------------------------------

I think it's going to be relatively within a margin of error -- relatively consistent with what we've been doing the last couple of years, Craig. So we're spending $1 billion to $1.5 billion per year. That's not going to jump up to $2.5 billion just because of what I would -- because of some of the constraints that we have, not financially but just execution. So I would expect us to continue to be in that range over the next few years.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

And your next question comes from Christy McElroy with Citi.

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [10]

--------------------------------------------------------------------------------

It's Michael Bilerman here with Christy. David, Christy and I both picked up our gold cards, but I don't think we're going to win. Our kids probably have a better chance of doing that than we do.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [11]

--------------------------------------------------------------------------------

I would get one of your kids to enter it, and then they may have a better shot than you, Michael, okay?

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [12]

--------------------------------------------------------------------------------

Exactly. If you think about all of these investments that you're making, a lot of the consumer-facing brands, and you talked a little bit about, you went through the list on the call. It was reported in the press the Soho House one was about a $100 million. How should we think about the totality of capital that you have out today across all of these different investments?

If you look at the balance sheet, I'm not sure, if it's in the other asset's category, but if it is, that totality has gone from $1.2 billion up to $1.8 billion over the course of the 9 months.

So can you give us a little bit of sense of the total money that you've put out across all of these different exciting adventures?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [13]

--------------------------------------------------------------------------------

Yes. First of all, just to clarify, the increase in the other assets, it's basically because writing up the leases to value them. I mean, that's the biggest, because of the new accounting rules, that's the biggest change, okay?

So you can't go from that number to what we've invested by any stretch of imagination.

So that's number one. Number two is to the extent that we reached materiality, we are, obviously, going to have to disclose that with our -- in financial statements, in our Q and our K.

So the other assets is, just so you know, is the -- is basically the increase in those deferred. Yes, it's writing up the net $525 million roughly when you have to write up your leases to market with the new accounting rules, okay?

So we have not reached the -- I would say it this way, we certainly have not reached our investment -- our outside investments to the level of materiality. That's the first point.

Second is, I look at it, our embedded -- well, basically reinvesting our embedded gains that we have in Aero and ABG and some of the other venture group investments into some of these things.

So right now we're playing with the house's money. And it's not material. I don't think the Soho House number is right. So just I'm not going to go through each one at each level. Again, I encourage everybody, try to think about us a little bit differently. But what we're doing is, we're making these investments to learn so that we're going to be: number one a better company; two, is creating investments with great partners, with great entrepreneurs, with great shareholders. I think it's going to exponentially increase our opportunities in our -- both in our physical, and ultimately, in the online world. And the level of activity that we are seeing, it's just very encouraging, that's all I can tell you.

I mean, I think, we're at the epicenter of kind of physical, online world, entertainment, creating the next generation destination center, and it's -- we're all trying to put it together.

But we're not -- at this point, simple thing to think about is, make sure you understand debt on the deferred assets, number one. Number two is make sure you understand, we're not at the materiality level. And number three is, it's basically we're rolling the embedded gains. The way I think about it is I'm rolling the embedded gains in our future investments.

But we're also making these, not as a learning experience, because who cares about learning. We're doing it to make money. And I expect all of these to pay off in the future.

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [14]

--------------------------------------------------------------------------------

David, you've obviously been critical to the company success for well over 25 years. You signed your last retention employment agreement back in 2011. That expired back in July. Where do things stand in terms of -- are you going without an employment agreement at this point? Or is that still being worked on?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [15]

--------------------------------------------------------------------------------

I have no employment agreement.

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [16]

--------------------------------------------------------------------------------

So you'll just be an employ at will with everybody else?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [17]

--------------------------------------------------------------------------------

That's the way it's shaping up. Yes, that's the answer.

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [18]

--------------------------------------------------------------------------------

Christy has a question too.

--------------------------------------------------------------------------------

Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [19]

--------------------------------------------------------------------------------

You mentioned 100 basis point impact, I think, to a comp NOI from bankruptcies in Q3. Just to try to get a sense for the impacts that have already incurred -- been incurred in Q3 versus what could be incremental in Q4?

Just with regards to the Forever 21 bankruptcy filing was there any reserve in the revenue line and impact to same store for non-payment of pre-petitioned rent. And have you seen any impact thus far from Barneys or Kitchen Collection at this point?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [20]

--------------------------------------------------------------------------------

Not at this point. I mean, we don't really go through each and every retailer. I don't think it's fair, given the size of our company, for us to talk about specific retailers. I want to differ on that. But the reality is we have these, we've updated our guidance, we've narrowed the range and all of that's kind of embedded in that.

So I think the important point is a number of these were unanticipated from our budget. We told you what our budget was at the beginning of the year. We don't update our comp NOI, as you know. And we would have well outperformed it.

We still -- the biggest variable we've got right now is still the overage rent in the -- our tourist centers. And we'll see how the fourth quarter shakes out. To me, that's the bigger variable than anything else.

But all of kind of -- all of the noise that is out there from certain retailers is embedded in our guidance for the year.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

And our next question comes from Steve Sakwa with Evercore ISI.

--------------------------------------------------------------------------------

Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [22]

--------------------------------------------------------------------------------

I guess, David, maybe you or Rick could just talk about sort of the leasing pipeline and the momentum? And if you think about 2020, and kind of where you sit in terms of leasing for next year and just the tenant demand, how would you describe the environment today versus, say, a year ago? And how do you feel like you're shaping up on your 2020 expirations?

--------------------------------------------------------------------------------

Richard S. Sokolov, Simon Property Group, L.P. - President, COO & Director of Simon Property Group Inc. - GP [23]

--------------------------------------------------------------------------------

Steve, it's Rick. In fact, David and I have just walked through 12-hour days going property by property. And frankly, the environment is still strong. There are a lot of tenants that want to access our properties across all 3 platforms.

We are doing a whole lot of leasing. So far this year, we've done almost 10.5 million square feet. You see our rents are up, our spreads are up. And in a lot of instances, spaces that we're getting back were are putting in more productive tenants at higher rents.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [24]

--------------------------------------------------------------------------------

I would just say, look, next year, we are -- I think, we'll -- we, obviously -- it does take time. We did -- we are having a high bankruptcy year. I mean, there is no denying that. I mean, if we're -- so -- but as we put together our plan for next year, I think, we'll be okay. And we're hustling. We are finding new tenants.

The biggest setback that I see for next year is not so much replacing the bankruptcies but really getting our redevelopment pipe open.

We've got a -- we have taken a step back this year. A reasonable level of cash flow, forget whether it's comp or whatever, however you want to describe it. But we've taken a reasonable step back this year, because of taking down properties to redevelop.

And we are never a company that does -- I've seen so many companies throw away the year and say, well we'll get back in '21, we'll get back in '22. We do not do that.

So the reality is we're going to come down with comp NOI that's going to be not so bad. It's a little variable, as I've described repeatedly with our -- the tourism slowdown, which we pointed out 6 -- 3, 6 months ago. And now you'll -- you see it across the board for both retailers and companies that are -- have exposure to tourism and the strong dollar.

But we are still going to deliver comp NOI growth. It's not going to be that, as one of my heroes would say, not too shabby. Next year, we've got a lot of -- we don't give guidance until as you know end of January.

I think it will be fine even with the bankruptcies that we've got to lease up and the fact that we're still in a massive redevelopment number.

And that step, the redevelopment takes time. I mean, we are in that business. We're not in the -- but we don't have throwaway years, Steve. You know that about us.

--------------------------------------------------------------------------------

Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [25]

--------------------------------------------------------------------------------

No, no. Look, I appreciate that. I guess, again, not -- I guess trying to delve a little bit onto the redevelopment and just thinking about next year and some of the headwinds, you've taken down Northgate this year. I mean just think about, I guess, those types of projects that have negatively impacted. Do you expect those to continue? Number one. And then as you just sort of think about the list of bankruptcies this year and you sort of think about possibilities for next year, does the list of potential bankruptcies next year look a lot smaller than maybe they did a year ago?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [26]

--------------------------------------------------------------------------------

No. I think -- listen, I think we're flushing through most of the dudes, okay? So, I actually think -- now who knows, I mean, but I think but we're kind of reaching bottom in '18 on that stuff -- or '19 on that stuff. It's rivaling what happened in '17. So it's not like something that we haven't experienced before, but we know we have to do.

And again, I don't want to get ahead of our guidance, but I don't think -- you're not going to see a dramatic "oh my God" from us, okay, when we present our plans.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

And our next question comes from Caitlin Burrows with Goldman Sachs.

--------------------------------------------------------------------------------

Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [28]

--------------------------------------------------------------------------------

Your third quarter same-store NOI growth of -- up 1.6%, seems like it's the best in the mall sector. So I was just wondering if you guys could go through any thoughts you have on how you're able to differentiate yourself. Is scale helping, the mix of property types or something else?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [29]

--------------------------------------------------------------------------------

Well, I mean, I think it's not -- if you look over a long period of time, I mean, I think, we've done that for a number of years. So I don't really -- I don't know. I mean, it's a function, we have good people, good assets, we're diversified, not tied in one particular regional place. And again, I just want to -- you know the fact of the matter is that we put in our international business, which we really don't have. We're thinking about it but we don't want to confuse people, so we'd be well over 2% comp NOI growth.

And don't forget about our international business. It's 26 assets, again, excludes Canada because we have put Canada in our Premium Outlet business from the get-go.

So I don't know. I just -- it's -- we're focused on the business and running it day-to-day the best that we can.

So I don't really want to compare or contrast, but I think it's not -- this isn't like a first quarter. This isn't the first time we've done that, I guess, is what I want to say. Right, Rick?

--------------------------------------------------------------------------------

Richard S. Sokolov, Simon Property Group, L.P. - President, COO & Director of Simon Property Group Inc. - GP [30]

--------------------------------------------------------------------------------

Exactly. Listen, we grind every nickel, everybody pays attention to every aspect of our business, on the income side and the expense side. And we've been doing it for a very long time, very consistently, and we intend to continue to do it.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [31]

--------------------------------------------------------------------------------

Yes. Here's the culture. So we go through every asset while we're planning. We were here till 9 o'clock last night. We're not sitting here planning how we're going to communicate, maybe we should, because sometimes we garble the message, all the time, maybe. But we've been, in the last 2 days, going through -- this is -- we're going through our mall portfolio today, then next week we go through the international business, and each category, I have offered Bilerman to come here and see it. But Ward's telling me not to do that again.

But the reality is we're doing that to 9. We did all day Monday to 9. We do it all day today. We're -- right after this call, we're doing it. There's no downtime. We're not planning how to communicate what we're doing. We're just doing. And that's the culture.

--------------------------------------------------------------------------------

Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

Got it. Okay. And then I was wondering maybe if you guys could talk about the new outlet in Oklahoma that you're working on. Just what pre-leasing has been like? And what other retail options are in the area?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [33]

--------------------------------------------------------------------------------

Well we have a very good mall there.

It is the -- I mean, not to dwell too much on demographics, but it's the largest trade area without an outlet center. And we have been working on it for a while. And based on our success in Denver and tenant demand, we feel extremely confident we're going to be able to deliver for a good return in a very good market. I mean, Tulsa is a very good market with good income demographics, and I think, it's kind of a -- it's really our bread and butter.

We don't -- honestly, if we have to pre-lease, we're not the kind of company we need to be.

So we don't really pre-lease, so to speak, but we're very confident that we'll be able to deliver the product that we want to deliver.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

And our next question comes from Jeremy Metz with BMO Capital.

--------------------------------------------------------------------------------

Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [35]

--------------------------------------------------------------------------------

David, just wanted to go back to Michael's question a little bit on the Simon Ventures and some of these other investments you made. And just hoping you can expand upon your last comment about -- in response to hedges in terms of -- how do you really think about measure returns for some of these, just given some of the clear tangential benefits. So you obviously, are looking to pull from doing these?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [36]

--------------------------------------------------------------------------------

Well. Just to be clear, we -- these -- we expect these returns to be similar to what private equity-type returns, and they must stand on their own. But we're making them because we think there's potential to do business with that partner.

So they're 2 separate decisions. One is, for instance, in Life Time, it's very simple. We looked at the multiple of EBITDA, we looked at their growth, we looked at their future, and we're very confident that we're going to get a multiple of our invested capital.

And, by the way, they are wonderful partners. And we're going to do arm's length of business with them going forward.

And it's a -- to me that is a perfect scenario of a win-win. So the investments must stand on their own. They must be -- and we look at them through a private equity lens much like everything else we've done.

At the same time, if we can do business with them on an arm's length basis, that's the gravy.

And that's basically how we look at it. And again, I -- and we expect that -- we -- by the way, yes, we've had some write-offs in our venture groups, which is a little -- these -- our venture group's a little more at the early days of investing, not in A round, not in -- kind of either B, C round, B, C or even D round.

But the ones that I've announced here this week are ones that are basically well-established companies.

So that's -- this is, in many cases, growth capital or just solidifying our relationships, and we think it's a good investment.

And again, these aren't at the point of materiality. Again, I want everybody to put the size of our company in perspective. But we're going to make money on those investments, one. Number two is, we're going -- we are going to learn a lot because a number of these companies are leaders in their industry. And we're not too old, Rick and I. We're close.

--------------------------------------------------------------------------------

Richard S. Sokolov, Simon Property Group, L.P. - President, COO & Director of Simon Property Group Inc. - GP [37]

--------------------------------------------------------------------------------

Almost. Almost.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [38]

--------------------------------------------------------------------------------

We're close, but we're not too old to learn. And I mean not to diverge, but the -- we were up at the RGG Board meeting last Thursday or Friday, can't remember. But I mean the amount that we're going to learn and in addition to the opportunities that we have as a partnership going forward, but the amount -- we're going to be a better real estate operator. And this is what I need everyone to try and appreciate.

We're going to be a better real estate operator, the more we know e-commerce, okay? The more we know how they integrate. And being partners with one of the best entrepreneurs, frankly, ever in the e-commerce space. One of the early pioneers. And that team, I mean just separates, I think, ultimately what we're going to be able to do.

And again, I can't say it's going to mean -- and it's a profitable company, and they do several hundred million dollars of sales and all this other stuff, but -- and we wouldn't have done it had we not felt like the company was worth it.

But the reality is, we're going to -- and it's going to accelerate our marketplace efforts. And we're going to be better in the real -- we're going to make money in that investment, but we're also going to be better real estate operators because of that investment.

And we're going to know our retailers better, and we do already. But this is going to take us to another, hopefully, to another level.

And that's -- that technology and how you integrate it with physical properties and all -- and with our retailers. I think it's going to be very, very interesting to see how it all evolves.

--------------------------------------------------------------------------------

Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [39]

--------------------------------------------------------------------------------

Great. And just the follow-up I have is just on the densification projects.

You removed the disclosure from this up but regardless you obviously have a number of projects going on that are going to deliver here in -- have been 2019, but really next year and beyond.

I just wanted, if you could talk about the pipeline. What's the total dollars at a gross cost basis today that you have underway?

And I guess, what's beyond -- what was last disclosed, I guess, last quarter, how much additional opportunities are you working on currently given some of the other needs here for your -- for capital. And it's a bit of a different skill set. So I'm assuming there's a human capacity to how much you can really have going on at any one point along these lines?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [40]

--------------------------------------------------------------------------------

Yes, don't read anything into the fact that we took that out. So here's why we took it out. And we can put it back in. But number one, we -- if they're under construction, and we've approved it, it's in the detail i.e. FIPS is already in the detail, that's number one. Number two is we're also outlining other stuff that's being done on the peripheral of our properties that we aren't doing that I thought was -- I didn't want to mislead the market somehow even though we asterisk that. It wasn't our project, so we took that out.

And three is, the pipeline is so big, we weren't having -- we weren't doing the right discipline of what's in there because it is a big, big pipeline.

So we just felt like it's probably better to communicate it when it's been approved. So the pipeline is actually -- I didn't want to just list like a BS schedule that says here's all that densification we're going to do. I'd rather just put it in the 8-K when we actually are doing it. That's the nature of our company as opposed to outlining potential stuff.

So the pipeline is -- continues to be very big, Northgate. Northgate continues to evolve. It's a billion-dollar project with office, residential. All sorts of mixed-use stuff.

We have the Houston Galleria development. Again, that could have been on a pipe, but we're not quite ready to start construction. So you'll continue to see what's the number, over $2 billion to $3 billion. If I had that -- had to put a number on it. But we'll -- I think, we'll just -- it is so much ingrained in our business now, there's no reason to separate it. It's just part of our 8-K that you'll see as we approve deals.

So I look at it as an evolution of our sophistication in our ability to execute. So it's just part of our portfolio as opposed to boy, this is a separate, distinct schedule. It doesn't need to be anymore because it's just part of our -- part of the nature of what we do.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

And your next question comes from Alexander Goldfarb with Sandler O'Neill.

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [42]

--------------------------------------------------------------------------------

Good morning, out there. So 2 questions. First --

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [43]

--------------------------------------------------------------------------------

Hey Alex, why do you say, "Good morning out there," all the time? Do you think we're that far out there?

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [44]

--------------------------------------------------------------------------------

Well, I, I, you know -- It's just a standard hello greeting. Anyway, now you're asking me to think on my feet which is tough. Questions. First on the debt side, obviously you had strong demand on your unsecured bonds, your price putting up tight to Apple.

But maybe you can just talk about what's going on in the mortgage market. Some of the folks that we've spoken to have said the lenders are either pulling back or trying to pair exposure or tightening terms, lowering LTVs, I mean, we all saw the LTV and the underwritings for the Norwalk SoNo Mall.

So maybe you can just give a sense of what's going on in the mortgage side of the business? And whether it's by asset type, is it across the board? Or is it certain productivity levels of malls, et cetera?

Just a bit more color on there.

--------------------------------------------------------------------------------

Brian J. McDade, Simon Property Group, Inc. - Executive VP, CFO & Treasurer [45]

--------------------------------------------------------------------------------

Alex, it's Brian. So look, I think from the mortgage perspective, this year, it's been a relatively light year from a maturity-profile perspective. But we're much more active next year. We're already in the market of some of those assets that are receiving solid indications back in line with where our expectations are. Look, I think at end of the day, we're not seeing any reduction in appetite, but certainly, that's the function of our asset quality.

And so we expect that market's going to be there. I understand that there is a few deals that are out there now that will get priced here in the next 6 to 8 weeks, which will further drive the price discovery in that marketplace.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [46]

--------------------------------------------------------------------------------

Look, I think, I would reaffirm Brian's points, but also just add a couple of things. Number one is sponsorship in -- and again, I'm not reflecting any other deals that are out there, but sponsorship is the case for everybody. Sponsorship is critically important, that's number one.

And the balance sheet, and that's what's great about where we stand is that we don't -- we can do all sorts of different financings. We're not tied to the secured market or the unsecured market. And that, again, is a material separator, which, I mean, we didn't harp on it again today because when Tom says this first thing, he usually puts it in on mic. I think people are tired of us talking about it.

So -- but I would think that -- and the proof is always in the pudding, which the pudding was pretty damn good a month ago, okay?

So the reality is we do have this separator in our real estate peer group because we have the ability to go in and out of the markets pretty effectively, whether secured, unsecured, et cetera.

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [47]

--------------------------------------------------------------------------------

Okay. That's helpful. And then the second question is on all the new investing you're doing, the Gilt, the Sports Illustrated, whether or not you do Forever 21, all these things. As you underwrite them how is your tolerance for the time to get to cash flow positive? Is it the same as you would underwrite for real estate, meaning -- or do these projects take longer? Or do you allow yourself more rope to let these things go before you decide ultimately to just kick the venture out and move on to the next?

Just curious how your underwriting is different and the time it takes to profitability versus the non-traditional retail ventures versus traditional retail real estate.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [48]

--------------------------------------------------------------------------------

Well, I think it really depends on the category and what the -- I mean the reality is, all these companies have comparables. So in some cases, they're valued at 5x cash flow, in some cases they're valued at 20x cash flow. And it's really a function of what we see in the future and where the market is.

So we don't really get ahead of ourself one way or another on that. And like I said, I think we look at it similar to what -- with respect to Simon Venture Group, what kind of -- the venture people look at it. We look at it with the same lens. And in the private equity, I think we do that same thing. And again, we have this extra sauce in the sense that we're expecting to get other benefits out of it, which are not necessarily in our numbers but which is important to us.

I don't want to talk about retailers specifically, and -- but we are not -- just so everyone is clear, we're not involved in the one retailer you mentioned about investing or doing anything on that front. I mean I think it got mischaracterized last call, so I just want to be clear on that. We're not involved in any retailer that is in BK in terms of us looking to invest. So just to be clear on that, Alex.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

And our next question comes from Rich Hill with Morgan Stanley.

--------------------------------------------------------------------------------

Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [50]

--------------------------------------------------------------------------------

David, so look, I think the reason that you're differentiating yourself is you're playing a lot more offense than maybe some of your peers who are playing defense. So with that in mind, I have one question and a follow-up to that. Look, 7% to 8% development yields, to quote you, "Not too shabby" in this world backdrop of slow growth and low rates. Are you seeing maybe even more demand from sovereign wealth funds, other foreign investors to maybe partner with you on your developments with an eye on the long term?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [51]

--------------------------------------------------------------------------------

Well, look, I think it's a really good question, Rich. You know. It's funny. Most of those folks -- I got to be careful here so I don't need to -- I mean right now, let's face it, we're a contrarian investment, okay? If you look at our multiple compared to most of the other nonretail real estate companies. And if you look at cash flow stability or multiples or however you want to slice it and dice it, we're -- in today's world, we're contrarian. And there are not, frankly, a lot of contrarian investors, there's more herd mentality. There are some very sophisticated sovereign wealths that would love to partner with us on new opportunities. And again -- and when I say new opportunities, existing real estates that they may have and they want someone like us to do that.

We're starting those discussions very -- they're very early. Early, early days just to get to know them. But the reality is not a lot of contrarian investment. And for whatever reason, we are considered a contrarian. But you do make a good point, we're on the offense. And the fact of the matter is we've been so busy and excited about the -- both the redevelopment, the densification and some of the new ventures that we've had that, that's perfectly fine for us, and we're going to continue to run the business.

So I do think at some point, there is a -- there'll be a swap back to reality, but those kind of investors would rather buy certain asset types that have 3.5 yield, I won't name names, as opposed to 6 plus in Class A regional malls. That's been historically a bad bet over time. And who am I to say I'm smarter than those other guys, but listen, I'm willing to play the game and see who's right in the long run.

--------------------------------------------------------------------------------

Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [52]

--------------------------------------------------------------------------------

Got it. And so one follow-up question to that. Look, you have a tremendous amount of free cash flow that you're spinning off, a super strong balance sheet. Why wouldn't you just ramp up CapEx as a percentage of your operating cash flow right now and spin even more money to redevelop their properties for the future? And how -- I guess, the question I'm ultimately asking is you had said CapEx is going to be relatively range-bound. Why wouldn't you play even more offense than what you're playing right now?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [53]

--------------------------------------------------------------------------------

Well it goes back to -- I mean it is literally some of the big projects we have. We're still constrained by getting approval. So we have 2 or 3 big ones that are in the approval process. Just to name 3 that jump out at me: Brea; Orange County; Stoneridge, which is in the East Bay area of California; King of Prussia. So we don't have the approvals yet to start. That's the biggest limiter. And I don't -- on the -- and we are building office, and the reality is we don't -- that's the one area we're not going to build spec on. I mean we're -- depending on the size, we're going to want some lead tenants. We're not foolish. So -- but we think we have really good product that's differentiated in the markets that we're contemplating it. But getting the lead tenant does take a little bit of time. So I think we're pretty aggressive, but -- and Northgate is a great example. I think Northgate, we could have been a little more methodical. And we had it -- just to give you a -- and it depresses me a little bit, but just to give you an order of magnitude. We had -- roughly, we had in that -- in our numbers this year to do about $15 million of NOI, and it's going to do $5 million, roughly. Yes, Brian, come on, I know these numbers. And that's because we accelerated. We basically decided, let's just get on with our lives and tear them all down, okay? Happened to be out there and the mall is coming down, believe it or not. So we are doing it. It's just, I think, we're moving pretty fast. In some of these areas, we're not going to be -- if we are building office, we're not going to get over our -- I mean it's 100,000 square foot cutesy building, that's one thing. But we're not going to get over our skis too much on some of the stuff to make sure we're in good shape.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

And our next question comes from Nick Yulico with Scotiabank.

--------------------------------------------------------------------------------

Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [55]

--------------------------------------------------------------------------------

Sorry if I missed this, but could we just get the bankruptcy impact on same-store NOI growth this quarter? I think it was cited as about 100 basis points in the first 2 quarters this year.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [56]

--------------------------------------------------------------------------------

It's 100 year-to-date, and it was 60 -- roughly 60 in this quarter. Correct or no?

--------------------------------------------------------------------------------

Brian J. McDade, Simon Property Group, Inc. - Executive VP, CFO & Treasurer [57]

--------------------------------------------------------------------------------

100 for the quarter.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [58]

--------------------------------------------------------------------------------

100 for the quarter. I'm sorry, 100 for the quarter.

--------------------------------------------------------------------------------

Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [59]

--------------------------------------------------------------------------------

Okay. And then second question is just going back to Forever 21. We looked at the bankruptcy filing for them. You only have one existing store on the store closure list at Roosevelt Field. This excludes all the stores in development which will not be opening. So I guess, that store closure list, I mean, should that give us comfort that there's one store in there? Or should we be expecting that all of your 98 stores with them, either you already gave rent release or you're planning to over the next year?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [60]

--------------------------------------------------------------------------------

Again, I don't -- we don't want to talk about specific retailers. We'll -- I think we'll have to see how that bankruptcy evolves. I mean there are more stores that they rejected that or about to reject that they never opened.

And again, I don't want to get into nitty-gritty detail, but in that particular case, because you brought it up, it was Riley Rose. We had a handful of those that lease is executed but won't be opening. So whether -- now they weren't in our initial numbers in any of that. So you'll see some of those come out one way or another. But it's never been in our -- until they open, it's not in our document, I guess, or 8-K. But we'll see how it goes. I mean I can't -- I'm not -- and I want to be very careful here. So I'm not involved in it. We're negotiating the future like every other major landlord, and we'll see how it all shakes out at the end of the day.

--------------------------------------------------------------------------------

Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [61]

--------------------------------------------------------------------------------

Okay. No, it's helpful. I guess, I'm just trying to tie it back to the bankruptcy impact year-to-date. If it was 100 basis points I'm assuming there was not much in that from Forever 21, unless you've already renegotiated leases. And it's almost 1.5% of your base rent. So as we look forward over the next year, it kind of feels like that bankruptcy impact of Forever 21 by itself could be similar to your overall bankruptcy impact this year. Is that fair?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [62]

--------------------------------------------------------------------------------

Well, I think you'll see a bigger -- we'll know more in 2020. It's not going to be material in '19. And I think the focus is going to be really 2020 of what that group is able to do going forward, which is out of our hands. And we're going to have to wait and see. We'll have a -- again, I don't want to get into particular tenants, but we'll have a -- our view of what happens with that and other bankrupt tenants will ultimately be in our 2020 estimates, and that's the way for us to look at it. At this point, the materiality of any of these guys in the next year-end is not, in my opinion, going to be material, okay? For you, it might be -- one set might be what? I don't -- okay? But it's -- we did update our guidance. And what we know today about the bankrupt tenants is in our guidance and that's the important thing. And then our view of some of these bankrupt tenants and what their plan is for 2020 will be in our 2020 guidance. And that's the best way I can answer that.

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

And our next question comes from Linda Tsai with Jefferies.

--------------------------------------------------------------------------------

Unidentified Analyst, [64]

--------------------------------------------------------------------------------

Just following up on what you were just talking about. So with some of these bankruptcies having been unexpected in '19, as you look out to 2020 do you think a base case of 2% SS NOI growth would still be achievable?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [65]

--------------------------------------------------------------------------------

We give our guidance at the end of January. I don't -- do we have a date yet? Not yet. We get -- we're waiting to see if the Colts make the Super Bowl because we want to make -- we want to work it around that date. That was a joke. But no, no, I actually think they're a pretty good team. But where -- we get that -- all of that will be reflected in -- we've never given 2020 guidance. And I mean people have estimates all over the place, so I don't really plan on it one way or another.

--------------------------------------------------------------------------------

Unidentified Analyst, [66]

--------------------------------------------------------------------------------

Okay. And then in terms of spo.com, how are you and Michael Rubin thinking about its value proposition? How much crossover of the product you provide online through spo.com is available through other online distribution channels? And then do you have any sense of the price differential on spo.com and how it might compare with other discounters like Ross or TJ?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [67]

--------------------------------------------------------------------------------

Yes. Look, this is a complicated -- that's a complicated question. And I think the important thing is we both think, and not just us but our SPO team and the existing RGG team couldn't be more excited about the future opportunities together that we have. I think their team is unquestionably excited. I would not -- I think it's going to be a great partnership for our company. And together, we're going to do a lot more, both in terms of growing their existing business and then the partnership taking the origins of our business and extrapolating that going forward.

But it is early days. We're very committed to making this exciting. And between all of our relationships with the brands and all of our physical attributes and their e-commerce attributes, this could be a really, really significant opportunity for our partnerships.

So let's give it a little bit of time. Can't give you an exact road map because some of this stuff we like to keep to ourselves because we are still growing the business and there's a lot of competition out there on that front. So -- but again, couldn't be more pleased with the potential opportunity in the future.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

And our next question comes from Ki Bin Kim with SunTrust.

--------------------------------------------------------------------------------

Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [69]

--------------------------------------------------------------------------------

So you've been reporting improving salesforce growth for the past several years. But that formula, there's some noise to it because the denominator is always changing. So I was wondering if you had a sense of the total sales productivity on -- at your centers over the past couple of years. I'm just trying to get a sense of if it's becoming more vibrant or somewhat static over time. And I realize that hotels and apartments, you can't -- there's no sales to go for, but just trying to get a bigger picture sense.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [70]

--------------------------------------------------------------------------------

Well, I will give you the benefit of rule of large numbers. There is absolutely -- given our large portfolio, there's absolutely -- your comment about the denominator changing is irrelevant in terms of our results because 1 particular property going in or 1 particular property going out or 10 going in or 10 going out ain't going to move the number my friend. So that's number one.

Number two is, many cases in our new developments, they come in below our average. And with that said, if anything, it's understating it. And then finally, I'll say, we continue to believe that we're reporting, and this is really important, and I've said it again and I don't want to keep saying it, but we're getting to you what's reported to us. And in some cases, what's reported to us is not actually gross sales.

--------------------------------------------------------------------------------

Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [71]

--------------------------------------------------------------------------------

Okay. And just going back to the topic of your investments that you're making in places like RGG or Authentic Brands. It's easy to get the sense that you're focused on making your fleet better and adding on different types of opportunities, like, your private equity or venture capital. When does this start to become more interesting to actually increasing your fleet size? Or is it the case that the upside opportunity in redevelopment and private equity type of investments is still just far and greater a better opportunity than increasing the fleet size?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [72]

--------------------------------------------------------------------------------

When you -- did you say fleet?

--------------------------------------------------------------------------------

Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [73]

--------------------------------------------------------------------------------

Yes. So mall count, retail center count, things like that.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [74]

--------------------------------------------------------------------------------

Oh. Look, I think, we historically have been acquisitive over our career, we just haven't done anything in a while. But the fact of the matter is if the -- we have so much going on and so many opportunities here, I feel pretty good. I don't feel like we need to do that. But if there's something out there that's -- that makes sense, we would look at it. But I think it's business as usual for us. And the focus being on -- I mean this sounds like gobbledygook, but the focus is just making us a better company. We got plenty of assets, and all of these things that we're doing and attempting to do is to make the real estate and our company better. But we are more than a real estate company in that we interface with brands and consumers to an unbelievable extent. So why not take advantage of that reach that we've done reasonably well but we can certainly do it to much greater extent. And that continues to be a focus for us.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

And our next question comes from Vince Tibone with Green Street Advisors.

--------------------------------------------------------------------------------

Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [76]

--------------------------------------------------------------------------------

Could you elaborate on the magnitude of the decline in international tourism and the impact that it had on foot traffic and tenant sales in some of your key getaway market properties?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [77]

--------------------------------------------------------------------------------

Well, we don't give out specifics out on that, but I mean it -- put it this way, the business has been -- the tourist centers have been relatively flat in terms of sales. And we think had we had a normal -- if we had a normal, what I'd call a normal dollar in terms of the strength versus -- vis-à-vis the euro and other currencies and all the other noise that's out there, we would have expected a 5%, 6% increase. So I don't know if that's -- Vince, I don't know if that gives you kind of what you want, but it's -- some of our bigger international property sales have been flat. And traffic has actually not been too much of the problem, it's been stable. But it's really we're seeing flatness of the sales that we would've expected. When we did budget, we would have expected to have a 5-or-so percent increase in sales.

--------------------------------------------------------------------------------

Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [78]

--------------------------------------------------------------------------------

Interesting. That's helpful color. And then just one more from me and maybe switching gears a little. Can you provide some color on the trends you're seeing in the private market for malls? I mean do you think cap rates or the number of interested bidders has changed over the last 6 months or so?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [79]

--------------------------------------------------------------------------------

I would say to you not -- I have not seen a change, but I would think that -- I have not really seen a tangible change. I still think investing is more or less a herd mentality, and we're -- I was going to give an animal analogy, but I'd better refrain. Last time I did cockroach, which I'm not going to do today. But I think people still -- the guys that have the money, I think they've always been -- retail real estate has always been -- it's not a commodity, so the operator really matters, so to speak. So it's not like a warehouse that's like one commodity versus the next. And so the operators matter and the money that kind of goes in and out of commodity real estate, it's always kind of ebbed and flowed for retail real estate because who the operator is has always been materially important.

So that's one aspect, I'd say to you. The next is I still think there -- surprisingly, I'm actually surprised about it, but the so-called smart money has not played a bigger role in this. But I mean they obviously have different points of view and they may be right, but we feel pretty good about what we're doing.

--------------------------------------------------------------------------------

Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [80]

--------------------------------------------------------------------------------

No. That's helpful. And just one follow up on that. I mean, let's say, the herd mentality does push cap rates higher, is there a point where you would potentially come in and be an acquirer of single assets on the market given, to your point, the platform makes a big difference and you could probably increase NOI with some of these acquisitions?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [81]

--------------------------------------------------------------------------------

Yes. I think if there was a good fit, we would certainly take a hard look at it. I think that's the other point. I mean we're not really seeing -- I think that's a good point. We're not really seeing kind of the A assets show up on the market.

--------------------------------------------------------------------------------

Operator [82]

--------------------------------------------------------------------------------

And our next question comes from Michael Mueller with JPMorgan.

--------------------------------------------------------------------------------

Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [83]

--------------------------------------------------------------------------------

I guess following up on that. For the properties where you have JV partners, have you seen those investors want to exit more in recent years? Or are they fine with the exposures and it's more about where to park incremental dollars for them?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [84]

--------------------------------------------------------------------------------

I would say a lot of them are following the herd mentality. Is that -- I'm not trying to be cute -- am I clear on that? If not, I'll restate what I -- the answer.

--------------------------------------------------------------------------------

Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [85]

--------------------------------------------------------------------------------

No. I think so.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [86]

--------------------------------------------------------------------------------

I think a lot of the folks out there are a little nervous about our business. But I would just put it not our business, not Simon Property Group business, but nervous about whatever retail, generally. And so they do tend to follow the herd mentality. That's where somebody, maybe us, is going to make a lot of money. I assure you. I've seen this movie before. And our cash flows are very, very, very resilient. If you have good real estate and a good operator, they always evolve and always change. And if you look at the mall that was built in the '60s, you look at the malls that were built in the '70s and '80s and '90s and 2000. Look at the redevelopment, I mean, my goodness, they changed a lot, and they're changing today. So I don't -- no one here -- I mean no one here is overly concerned about it. But all of these, they all get -- a lot of people suffer from groupthink, okay? Maybe we do, too, but we don't. We're in good shape.

--------------------------------------------------------------------------------

Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [87]

--------------------------------------------------------------------------------

Got it. And I mean would you think over the next 3 years, 5 years or so, maybe we see a pick up in you buying out some of these JV partners? Or is it little bit more of a function of you've got a big redevelopment pipeline, a lot of capital that's going there and you're getting bigger returns on that, so it's -- I guess, that's the trade-off? How do we think about? that?(inaudible)(inaudible)

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [88]

--------------------------------------------------------------------------------

Yes. I mean we're focused. Listen, I'm going to -- if they're nervous, I'm going to buy them at a real big discount. So let them get really nervous, I want them nervous, okay? Nervous is good for us, okay? So that's okay. But the reality is there could be opportunities, but we'll see.

--------------------------------------------------------------------------------

Operator [89]

--------------------------------------------------------------------------------

And we have a follow-up question from Christy McElroy with Citi.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [90]

--------------------------------------------------------------------------------

Hello?

--------------------------------------------------------------------------------

Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [91]

--------------------------------------------------------------------------------

David, it's Christy here with Michael. I know that -- just an accounting question from me. I know that the new straight-lining of CAM was addressed on the last call. It's a straight line that's trend is higher this year. But with the recent bankruptcies, I'm just wondering what kind of adjustments have been in there also for the write-off of accrual straight-line rents deemed uncollectible. Just with the bankruptcies this year given the near rules around determination of uncollectability. Just trying to get a good sense for what the normal run rate is for that line.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [92]

--------------------------------------------------------------------------------

I mean it -- that all flows through. So I don't have that off the top of my head. I would say to you it's not material. But I mean we do that all the time, right? So that -- we have to make that decision all the time whether it's collectible or not collectible.

--------------------------------------------------------------------------------

Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [93]

--------------------------------------------------------------------------------

Okay. I just didn't know if there was a material impact on that line aside from that being elevated with the straight-line you have with CAM.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [94]

--------------------------------------------------------------------------------

Not material.

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [95]

--------------------------------------------------------------------------------

David, it's Michael speaking. You talked a little bit about how your stock is a contrarian investment at this point given the multiple. And you've used some of your significant balance sheet capacity to buy back your stock, right? You did about $300 million in the last 6 months. You talked a little bit on this call about maybe partnering with sovereign wealth. It sounds like either buying assets that -- or managing assets they may own or look at new opportunities, no?

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [96]

--------------------------------------------------------------------------------

Ah. Ah. Ah. I don't think I said that, Michael. I said there are very few contrarian investors right now. And we're not really -- we're at the very early stages of seeing how they feel about our -- the market in general. So I just want to be clear on that, okay?

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [97]

--------------------------------------------------------------------------------

Right. And I was listening to when you were talking about maybe working with them, and I didn't know if there's an opportunity to either liquefy some of the value in the assets, the value you've created because. the debt markets provided you substantial amount of capital at very attractive rates. But it's your stock that's the one that's disassociated with the performance that you're putting up. And so I know in the past you've been reluctant to sell JV stakes in your assets to buy back your stock. I'm wondering if that's changed at all in some of these conversations that you're having if you find that there's an opportunity to partner with a contrarian capital that would want to do that.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [98]

--------------------------------------------------------------------------------

Well, again, I have never been a fan to sell an A asset to make a mark because A assets grow historically over time. And most everybody that's sold an A asset, if they're going to believe it's an A asset in the future, regrets that decision, okay?

So -- and buying stock back is a temporary investment decision. And the reality is we're in this for the long haul, as we've demonstrated over almost 26 years of being a public company. So I think that's kind of the worst thing, frankly, we could do. And getting this mark, making the -- getting a mark on our portfolio is fool's gold. It's never worked because the next question is, well, what about the rest of the portfolio?

So -- and again, just to reemphasize, so the answer is no interest in doing that, number one. Number two is, there are some of these -- I mean, we're just -- I don't want to overemphasize and hopefully I didn't, I'll look back at the call, but we're not out running around saying, do you want to go. If people come to us, we'll talk to them about interest -- partnership interest, but we're not out soliciting sovereign wealth funds. We're not out doing that. The reality is we don't need their capital. So they know my number, 1 (800) David. Call me if they want. If they don't, they don't have to, okay? So...

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [99]

--------------------------------------------------------------------------------

And I wasn't thinking about it from a mark...

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [100]

--------------------------------------------------------------------------------

I just -- I don't want to overemphasize. We've talked to a few here and there. I think they respect what we do, but I don't really know. And maybe that's a flaw on us that we haven't really solicited them just to have better relationships. But I mean we've done okay without them being a major player for us to get to where we are today. We've never needed that in scale. So that's that. So I don't want to overemphasize. We've had discussions here and there because sometimes they call, sometimes they don't. So we're not out trying to buy partnership interest of ourselves or others. We're not out talking to sovereign wealth other than we'll have a couple of conversations. And look, the reality is a lot of the intuitional investors, as we all know, have a certain queasiness over retail. We've seen that before, it doesn't affect us. It's not -- it doesn't -- it affects you, it affects others, it does not affect me and my company and what we do. That's the important point, okay?

--------------------------------------------------------------------------------

Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [101]

--------------------------------------------------------------------------------

And I wasn't thinking about it from a positive mark, I was thinking about it more so in being able to raise additional capital and invest in your stock. Just basically bolster that program that you're doing right now using the free cash flow in capacity, doing something more meaningful if you were able to find an investor that's willing to partner with you. I understand the dynamics and I understand giving up the growth, I just didn't know if that was part of the psyche today just given where things stand.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [102]

--------------------------------------------------------------------------------

No. I mean the stuff that -- look, I think most of the -- and again, we're being -- we're spending more time on this than warrants it, but most people, most institutional investors would like to do something. As we talk to them off and on over several years, most of them like to do external stuff with us. But the reality is we haven't been doing that, so we haven't been talking to them, okay? So again, it's -- we're spending too much time on this.

On the other front, look, we've got -- why aren't we aggressively buying our stock back? Listen, we love our balance sheet. We'll be -- I think it's an unbelievable advantage, unbelievable, it's underappreciated. Sorry, Tom, I took out your paragraph in the teleconference text. To do $3.5 billion in 4 hours, 30-year bonds, blah, blah, blah. It's all pretty powerful, we don't want to jeopardize that. We've seen when people have overstepped their numbers, overstepped their credit ratings, how it kind of retard their opportunities going forward. We don't want to do that.

And importantly, I mean, we're in the process of adding to our already successful retail real estate portfolio. And what does that mean? We're doing all this densification stuff. We're building our consumer-facing business. We're positioning the company for the future. And as we all know, any leading company out there invests in the future. From Microsoft to Amazon to go down the list. Every successful company understands the importance of investment. And so I want the balance sheet that allows us to invest. If I had a criticism of historical retailers they did not invest in their -- and again, it's not for me to criticize, honestly. So I don't want this to sound like I know it all, but the reality is what we've seen, what Rick and I have seen because of strained balance sheets or overspending in one thing versus another thing is the inability to reinvest in your business is a major no, no. So that's -- we are not going to do the major no, no.

--------------------------------------------------------------------------------

Operator [103]

--------------------------------------------------------------------------------

And I'm not showing any further questions at this time. I'd like to turn the call over to Mr. David Simon for any closing remarks.

--------------------------------------------------------------------------------

David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [104]

--------------------------------------------------------------------------------

Okay. Thank you, everyone. Have a great day.

--------------------------------------------------------------------------------

Operator [105]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.