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Edited Transcript of TCO earnings conference call or presentation 30-Oct-19 2:00pm GMT

Q3 2019 Taubman Centers Inc Earnings Call

Bloomfield Hills Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Taubman Centers Inc earnings conference call or presentation Wednesday, October 30, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Robert S. Taubman

Taubman Centers, Inc. - Chairman, CEO & President

* Ryan T. Hurren

Taubman Centers, Inc. - Director of IR & Interim CAO

* Simon J. Leopold

Taubman Centers, Inc. - Executive VP, CFO & Treasurer

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Conference Call Participants

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* 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

* Greg Michael McGinniss

Scotiabank Global Banking and Markets, Research Division - Analyst

* Michael William Mueller

JP Morgan Chase & Co, Research Division - Senior 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

* Samir Upadhyay Khanal

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

* Shivani A. Sood

Deutsche Bank AG, Research Division - Research Associate

* Todd Michael Thomas

KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst

* Vince Tibone

Green Street Advisors, Inc. - Analyst of Retail

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Presentation

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Operator [1]

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Thank you for holding, and welcome to the Taubman Centers' Third Quarter 2019 Earnings Call. (Operator Instructions) On the call today will be Robert Taubman, Taubman Centers' Chairman, President and Chief Executive Officer; Simon Leopold, Chief Financial Officer; and Ryan Hurren, Vice President, Investor Relations, Interim Chief Accounting Officer.

Now I will turn the call over to Ryan for opening remarks.

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Ryan T. Hurren, Taubman Centers, Inc. - Director of IR & Interim CAO [2]

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Thank you, operator, and welcome everyone to our third quarter conference call. As you know, during this conference call, we'll make forward-looking statements within the meaning of federal securities laws. These statements reflect our current views with respect to future events and financial performance, although actual results may differ materially. Please see yesterday's earnings release and our SEC filings, including our latest 10-K and subsequent reports, for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, a replay of this call will be provided through a link on the Investor Relations section of our website.

During this call, we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations to these non-GAAP financial measures to the comparable GAAP financial measures are included, when possible, in our earnings release, our supplemental information and our historical SEC filings. Non-GAAP measures referenced on this call may include estimates of future EBITDA, NOI, after-tax NOI, pro rata total portfolio NOI and/or FFO performance of our investment properties. Such forward-looking non-GAAP measures may differ significantly from the corresponding GAAP measured net income due to depreciation and amortization, tax expense, interest expense and/or other adjustments, some or all of which management has not quantified for the future periods. Following today's prepared remarks, we will open the call up for questions. (Operator Instructions)

Now let me turn the call over to Bobby.

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [3]

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Thanks, Ryan, and good morning, everyone. Yesterday, we released our third quarter results. Adjusted FFO per diluted common share was $0.86, in line with our expectations, and we remain on track to reach our full year AFFO guidance. Our pro rata share of total portfolio NOI was up 70 basis points in the quarter and 3.6% year-to-date. Comp center NOI growth, excluding lease cancellation income, was down 150 basis points. Forever 21's bankruptcy filing and a nonpayment of September rent, along with continued unfavorable foreign currency exchange rates, had a significant impact. Removing these items, third quarter NOI was flat compared to last year and was up 1.5% year-to-date.

Average rent per square foot was up 2.3% in the quarter and 1.7% year-to-date. On an NOI-weighted basis, it's 3.3% for the quarter and 3.2% year-to-date. In the U.S., comp center's average rent per square foot was $62.20, up 90 basis points for the quarter and year-to-date.

On an NOI-weighted basis, rent growth in our U.S. centers was 2% for the quarter and 2.5% for the year. At quarter end, our comparable center occupancy was 93.4%, up 10 basis points over last year and 120 basis points from last quarter. While in recent years we have seen elevated levels of tenant turnover, we have continued to maintain healthy occupancy levels, while improving our merchandising.

This quarter, some of our notable additions were Balenciaga's new expansion and KENZO at Beverly Center; Gucci at The Gardens at El Paseo; Crate & Barrel opened a 28,000 square foot store at The Mall at Green Hills in Nashville. With respect to digitally native brands, Palatine opened in 2 locations. They now have 7 stores with us. Warby Parker also opened in 2 locations. They have 4 stores with us. Casper opened its fifth store, and Chubbies now has 2 with us.

At Waterside Shops in Naples, Apple reopened in an 8,000 square-foot store, and Louis Vuitton has reopened in a new expanded 4,000 square-foot store. At Dolphin Mall in Miami, New Balance, Reebok, Aerie and Children's Place opened comprising 20,000 square feet. At CityOn.Xi'an and CityOn.Zhengzhou in China, we backfilled 2 Forever 21 spaces with Sephora, Nike, APM Monaco, OPPO, Bose, Victoria's Secret and others. This has lifted the sales productivity and NOI at both centers.

Lease space was 95.9% on September 30, up 80 basis points from last quarter and slightly ahead of last year. A few new and noteworthy leases signed this quarter include: Nordstrom Rack and Adidas outlet taking a combined 44,000 square feet at Great Lakes crossing here in Detroit; Our House Furniture in Pinstripes, a popular bowling concept, will occupy over 40,000 square foot in International Plaza in Tampa; and digitally native brands like Warby Parker, [Beta], Chubbies continue to be adding stores.

We're also delighted with our leasing progress related to the expansion and renovation at The Mall of Green Hills. The center will have 60 unique-to-market tenants, including Zara, that is set to open its 37,000 square-foot flagship store for Nashville next year.

Louis Vuitton will nearly double their pace in a new 4,500 square-foot store, Golden Goose, Gucci, Powerhouse, EVEREVE, Morphe, Amazon Books, Fabletics and others have signed leases since our April update. We also now have 11 digitally native brands, either opened or committed to the center. Overall, leasing program is substantially complete, and we're very pleased with the level of merchandising, especially the luxury component, which exceeded our expectations.

Turning to sales. Overall, steady sales growth has continued this year on top of very strong sales last year. Trailing 12-month sales in U.S., comparable centers were $964 per square foot, up 13.7% over the prior period. Including Asia, our trailing 12-month sales were $868 per square foot, an increase of 12% over last year.

NOI-weighted sales were $1,015, up 12.4%. In the third quarter, sales per square foot were up 12.3% in the U.S. and were up 11.2% overall. This is our 13th consecutive quarter of growth. Although we benefited from Tesla deliveries again this quarter, sales growth was solid, nonetheless. Our largest categories of merchandise have performed well all year. Apparel sales were up for the eighth consecutive quarter on top of an 8.5% increase in the third quarter of last year. Shoes were up 5% in the quarter and year-to-date. Electronics, including Apple, continued to see double-digit growth. Growth in luxury across categories also remained strong. Louis Vuitton, Versace, Bulgari, Omega, Breitling, Saint Laurent, David Yurman, Salvatore Ferragamo and Hermès were all up at least 7%. In apparel, Zara, H&M, Fabletics, lululemon, Aerie, Tory Burch, Ralph Lauren and Zumiez posted strong results.

Moving to San Juan. In August, we settled the lawsuit with Hudson’s Bay Company regarding the Saks Location at The Mall of San Juan. As you recall, in September 2017, the Saks store sustained significant damage as a result of Hurricane Maria and did not reopen. We felt strongly our agreements were clear and that Saks was required to make the necessary repairs and reopen as expeditiously as possible. With Saks closed, total sales grew nearly 20% compared to pre-hurricane levels and leasing along with merchandising continued to improve. In this context, we agreed to settle the litigation in exchange for Saks' paying us $26 million. We were also able to resolve nearly every co-tenancy issue, including with Nordstrom's. We're actively working with a number of new tenants to take the Saks box that would be additive to the merchandising of the center.

So with that, I'll turn the call over to Simon.

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [4]

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Thank you, Bobby, and good morning, everyone. I'll begin by reviewing our year-over-year FFO variances for the quarter that are listed on Page 9 of our supplemental. FFO per share for the third quarter was $0.88. Adjustments this quarter included a promote fee received related to Starfield Hanam, a restructuring charge and cost related to shareholder activism, resulting an AFFO per share of $0.86. The net promote fee of $4 million resulted from Blackstone's purchase of the 14.7% interest that was owned by the company's institutional joint venture partner. AFFO per share is $0.86 this quarter compared to $1.01 of the third quarter of 2018. We noted several year-over-year variances in the press release that affected this quarter's results, including interest expense, unfavorable $0.05 primarily due to lower capitalized interest, largely the result of the completion of the Beverly renovation project in November of 2018.

Nonoperating income, down $0.025, due to a land sale gain and dividend income from Simon Property Group shares that are included in the last year's results. Lease cancellation income was also down by $0.025. And uncollectible tenant revenues, which are formerly known as bad debt, were unfavorable by $0.02, primarily due to the Forever 21 bankruptcy filing.

Our other year-over-year variances included the following: minimum rents, up $0.04, primarily due to higher-average rents partially offset by the write-off of Forever 21 straight line rent receivable; net recovery is down $0.02, were also impacted by Forever 21 as well as higher common area of spending; G&A was $0.015 unfavorable due to some unanticipated nonrecurring legal expenses; and lastly, our noncomp centers were unfavorable by $0.01.

Now moving to the balance sheet. We're pleased to refinance and extend both our primary line of credit and one of our unsecured term loans earlier this week. Our line of credit will maintain a capacity of $1.1 billion, and our term loan now has a principal balance of $275 million. The maturity date of our line of credit is now February 1, 2024, with 2 6-month extension options, which is if exercised, coincide with our new term loan maturity date of February 1, 2025. Both loans bear interest within a range based on the company's total leverage ratio.

Today, the line of credit has a rate of LIBOR plus [1 and 3 8s] resulting in an effective rate including a facility fee of about 3.4%. The term loan has a rate of LIBOR plus 1.55%, with LIBOR continuing to be swapped to a fixed rate of 2.14% through February of 2022, resulting in an effective rate of 3.69% today. These refinancings slightly lower our effective borrowing rates and improve our weighted average debt maturity to nearly 6 years. We're pleased to have 15 banks participate in the facilities. I would like to thank our bank group for their continued support. I now want to provide an update on the progress of our Asia transactions with Blackstone.

In September, we closed on the largest of 3 joint ventures by completing the sale of half of our interest in Starfield Hanam to Blackstone for $300 million. This sale represents more than half of expected proceeds from the 3 joint ventures.

The company now owns a 17% interest in the center with Blackstone earning 32% and Shinsegae owning 51%. We remain on track to close the 2 China joint ventures around year-end. In addition, there are 2 refinancings on the China projects that are part of the overall recapitalization of our Asia business. We completed the refinancing of Xi'an back in April and expect to close the Zhengzhou loan before year-end.

Now an update on our 2019 guidance, which as a reminder, can be found on Page 6 of our supplemental, along with all our key guidance assumptions. We are reaffirming on our previous AFFO guidance range of $3.64 to $3.74 per share. The Forever 21 bankruptcy, filed in late September, remains a fluid situation. As we noted last quarter, we believed our guidance range incorporated adequate reserves for this year's AFFO impact. Based on what has happened and what we know to date, we believe our AFFO range remains appropriate. As it relates to occupancy, our current expectation is that nearly all of our 17 locations will remain open and operating. While we are not changing AFFO guidance, we are adjusting 3 key guidance measures.

First, we have revised our comp center NOI growth guidance. We now expect growth to be flat to 1%. On our last earnings call, we highlighted the headwinds of foreign exchange rates presented to our NOI growth. Currency continues to have an adverse impact, about 80 basis points of drag on growth through the third quarter.

In addition, China bankruptcies, including Forever 21, have resulted in elevated frictional vacancy, nonpayments, or in some instances, lower rent. We're also updating our interest expense guidance for the year. The previous range did not include the debt paydown associated with the Starfield Hanam transaction. Interest rates are also lower than we originally forecast. Finally, we revised our expected lease cancellation income at share from $12 million to $10 million.

Now I'd like to make a few comments as we look to 2020. First, based on today's best estimates, we expect Forever 21's bankruptcy to create a drag on comp center NOI growth next year of 1% to 1.5%. The resulting FFO impact we estimate to be $0.08 to $0.10.

Next, while the Blackstone transactions were clearly accretive when we announced the deal back in February, a good portion of that accretion was related to debt reduction at rates that were materially higher than they are today. We now believe rates will be at least 100 basis points lower than assumed and the net effect will be about $0.03 to $0.04 of FFO next year.

Lastly, in 2019, we received about $7.5 million of business interruption proceeds related to The Mall of San Juan, which are included in FFO and AFFO this year. These will not be replicated next year and are not expected to be offset by NOI growth at the center.

With that, I'll hand the call back over to Bobby.

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [5]

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Thanks, Simon. While the retail landscape continues to evolve, we have maintained strong occupancy levels, and we are growing sales, rent and portfolio NOI. We're also on track to meet our earnings expectations for the year. Finally, in Asia, we have made substantial progress on both our Blackstone transactions and our new development in Anseong, South Korea.

So with that, we'll take your questions. (Operator Instructions) Christine, are you there?

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Questions and Answers

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Operator [1]

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Yes, sir. (Operator Instructions) Our first question comes from the line of Christy McElroy from Citi.

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Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [2]

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Just with regard to Forever 21, understand the process is still fluid and I really appreciate all the detail on the 2020 expectation. Can you talk a little bit about sort of how investors should be reading into that initial closure list that was filed? And how we should be thinking about that impact in the context of expected closures versus rent relief?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [3]

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Well, as we said, the situation, Christy, is very fluid. And the bankruptcy, it remains unresolved. There was a new list put out, I think, yesterday that's much shorter list of the closings, and there were only 2 on that list. Originally, they were 12 on the list that were included for us; now there are 2. It's likely, as we said, that almost all our locations will remain open, but when we have rights to take them back -- if we have rights to take them back, what the rent levels will be, what we're reflecting in our expectations here is based on all those negotiations that are occurring, and we think that the likely outcomes are well within that range. The reasonable sort of range of outcomes for this year and for what we've now said for next year. So we'll see what happens, but it's winding its way through the process. It is very complicated. It is our single largest tenant. It's 4% of our space. It's actually 2.6%, roughly, of our ABR. So when your largest tenant goes into bankruptcy, it does have an impact.

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Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [4]

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And then just understanding that your re-leasing spreads continue to be impacted by short-term leasing, but even sort of excluding that impact, it seems like there has been a deterioration in your rent increases on permanent leases as well. Maybe you could give us an insight into that trend? And can you remind us, does rent relief related to bankrupt tenants flow through those re-leasing spread numbers?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [5]

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The last -- the answer to the last question is, no, they don't. We are still growing our average rents, Christy, and that's important to note. Even through the volatile environment, rents are going up. Spreads are always a complicated stat; they do not tell the whole story. I will say demand, for space in our centers, broadly remains very strong. We have healthy occupancy numbers. We have healthy lease space numbers. And we are able to push rent at our best centers. We really -- we manage for NOI. We manage for occupancy. We manage for the quality of our merchandising. And all of that's improving while we are able to move average rents up. The volatility is creating some drag on our ability to grow NOI this year, but over the long haul, we think our centers are getting a lot better. Spreads really are, for us, just an output. And especially in a small portfolio, in any quarter, they can be extremely volatile. So I point you really to average rent. I point you to occupancy. I point you to our merchandising, and that's really where we're focused.

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Operator [6]

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Our next question comes from the line of Jeremy Metz from BMO Capital Markets.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [7]

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As we look at the same store, the 30 basis points year-to-date performance, guidance assumes you roughly at that same level in the fourth quarter to finishing that flat to 1% range. So what are some of the moving pieces here to get you there? And what are you expecting from Forever 21 impact. That's obviously 90 basis points here in the third quarter, but I think they did actually pay October rent. Correct me if I'm wrong there.

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [8]

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So on the last piece, Jeremy, they did not pay rent in September, and that was a hit in this quarter, that was about $1.6 million in the quarter to NOI. There was also a straight line rent right up that we referred to, that's not an NOI. That's an AFFO. But maybe just I'll give you the broad picture on the comp center guidance for the year and the revision. We started the year at 2%, which included a very small drag, very small, 10 basis points from expected FX rates between the U.S. dollar, the Korean won and the China RMB. Rates have been -- throughout the course of the year, we've been highlighting it, have been a bigger drag than originally expected. It's about 80 basis points through the first quarter. So -- sorry, through the third quarter.

So when you look at that versus about 2, that gets you a lot closer to about 1 for the year. The other piece here is Forever 21, but it's also the entire volatile environment with bankruptcies where we -- and we are seeing an elevated bankruptcy environment. This looks a lot more like 2017 where we had about 3% bankruptcies, that was about half. It was about half of that into 2018, but this is looking a lot more like '17 than '18. And so between Forever 21 and the expectations for the year and what we saw in the third quarter and the overall elevated level of bankruptcies on the year, we've essentially burned through the reserves that we had in place. We said on our second quarter call that we thought that we would be able to accommodate Forever 21 within our reserves, but we wouldn't have much left, that's impact where we are. So between FX and what we've seen in terms of elevated bankruptcies and effectively putting back in a $3 million to $5 million cushion for reserves for the fourth quarter, that gets you down to about 50 basis points of growth for the year, and that's the midpoint of our guidance right now.

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [9]

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Yes. Let me just augment, Jeremy, on bankruptcies, just to put data on it. In 2017, over 3% of our tenants went into bankruptcy. In 2018, it was half. It was about -- I think, it was 1.6%. In 2019 year-to-date, we're 2.4%. We're going to be over 3%. So if you think about '17 and you think about '19, they are really running on a similar basis. '18 made us feel a little bit better, but I do think that things are settling. I mean, we knew Forever 21 had issues, and clearly, there is tenants on our watch list, but this 3% level is very elevated. And as you look historically, we're anywhere from 50 basis points to a little over 4%. So anytime you get above 3%, you're really in the higher end of the range, especially when you get it sustained over now really a 3- to 4-year period of time.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [10]

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And in terms of the month-to-month leases and even these shorter leases, you've talked about that are dragging some on the leasing spread front, how much does this account for today? And as we think about retailers' mind sense shifting here and we think about incubating newer concepts, getting some of these digitally native tenants to test some mall space, over time, should we expect to see a larger proportion of these kind of shorter-term deals, whether it's monthly or even 1, 2, 3 years?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [11]

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I don't think that -- we're clearly seeing some large tenants, fast fashion guys out there, but they create, I will say, the lower spreads. But when you think about the digitally native guys, there has been some of that and a lot of that has turned into long-term tenants. I mean, Palatine is a very good example; UNTUCKit, Casper, they started in our centers with short-term deals and they turned into real concepts and they are now expanding as we talked about earlier in the prepared comments. So we think it's been a good strategy to actually get them involve and now they are really expanding, so -- but they are becoming normal tenants. They are paying normal rents, and they have taken space in a whole broad variety of shopping centers, which you heard in my comments earlier. So there is a transition going on from many legacy retailers into the new retailers, but it's beginning to really take shape and take hold.

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Operator [12]

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Our next question comes from the line of Greg McGinniss from Deutsche Bank (sic) [Greg McGinniss from Scotiabank].

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Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [13]

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I was just hoping to tackle and understand a few pieces related to Saks at San Juan. So you mentioned the co-tenancy is mostly dealt with there. So I'm curious what you have to maybe give up during co-tenancy negotiation with retailers to settling those disputes, especially with regards to Nordstrom? And then how much do you expect to spend to redevelop and backfill that anchor space?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [14]

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Well, first of all, Nordstrom, they have an operating covenant with significant term on it. And as we said, it is resolved -- the co-tenancy issue is resolved, and we can't talk specifically about that individual discussion. With respect to the other tenants, there were about a dozen tenants that we dealt with, that in one way or another the Saks closing impacted. And so I don't think it was material against the -- against where we were with those tenants specifically. We do think the Saks resolution allows us to move forward. We realized the gain on the transaction and you asked, "Is there going to be capital for to re-tenant it?" It is possible. But we now have the ability to track a much more productive tenant in their building. We are actively showing the space to a number of potential tenants, and we feel good about our opportunity to rebuild that location, and frankly, the center, as the island rebuilds, the tourism returns, we expect to have strong tourism this year given what's happened in the Bahamas, and we expect it to continue to grow. It has been a long process. It could continue to be a long process, but we are optimistic about the center, and we are very pleased to have the Saks resolution behind us.

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Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [15]

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Great. And then second question just hoping to talk a bit about Stamford Town Center. Curious with the market factors, where they are that kind of have led to some of the issues with that mall, and what was the impetus for finally listing the property? And do you foresee similar situation with any other holdings?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [16]

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So first of all, Stamford is a unique situation for us. We are exploring all possible alternatives on the asset. I want to remind people, we've said this before that it represents less than 1% of our pro rata NOI and about 1.5% of our comp center NOI. We did expect the competitive challenges that are there today. Again it was unique. They're very, very few projects anywhere in The United States being contemplated for major retail right now. And clearly, I would say, performance has been lagging in the assets compared to the rest of the portfolio for a while. If we excluded the assets from our comp center NOI growth, we would have been 50 basis points better this year. So it is impacting us. We are very focused on it, and we're looking at all the alternatives.

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Operator [17]

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Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [18]

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First question, Simon, the assumption that you provided for Forever 21's impact on comp center NOI and FFO in 2020, I just want to understand what that consist of in terms of the number of locations, just based on the comments around the list of closures that was released yesterday? And also what are you assuming -- I understand again that things are fluid here, but what are you assuming in terms of the timing of those closures or the impact there from Forever 21?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [19]

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Well, we don't want to get too deep into what is still a fluid situation, but I can give you the basic underpinnings of what goes into -- what went into our thought process, which is that we do believe that nearly all of the locations will remain open. We do and we've gone space-by-space and we looked at occupancy cost, we looked at what we think makes sense. And so inherent in that 1% to 1.5% reduction to comp center NOI and the 8% to 10% -- $0.08 to $0.10 reduction FFO is a reduction of rent that can be different in every one of those locations based on the occupancy cost of the tenant in place.

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Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [20]

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Okay. And, Bobby, the situation with Forever 21, does it make you -- you mentioned that you just opened up a new store with Zara. I'm just curious if this makes you think differently at all about fast-fashion, in general, whether Zara, H&M or just that business, in general?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [21]

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They are 2 totally different organizations and companies. Forever 21, I think, it's been widely reported, made a bunch of missteps along the way, including their expansions into Europe and Asia. We've already re-leased the 2 locations, I mentioned, at CityOn.Xi'an and CityOn.Zhengzhou in a very positive way. And unfortunately, they took some very large stores, many Mervyn's boxes and the like, and they just couldn't fill the -- they couldn't execute -- they couldn't fill the -- those large spaces and execute properly. And I think, again, it's well documented that this is sort of the unique problem with them. It's unfortunate, in every respect, and they really did in this country create the fast-fashion idea. And they did a terrific job for a long time. I would say, just in addition to Zara, who have been very cautious in their expansion and taking very few new locations at a time here in this country, H&M has also expanded very broadly. And H&M is doing very well this year throughout their portfolio and throughout our portfolio. So it's -- I think it is unique circumstance to Forever 21, and it sort of went off the rails in the last couple of years. And given the environment that we are in, the retail environment, I think, it accentuated itself dramatically.

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Operator [22]

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Our next question comes from the line of Craig Schmidt from Bank of America.

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Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [23]

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It appears that luxury sales are doing better than sales overall. And I was just wondering, are you seeing an increase in luxury retailers' appetite to open new stores?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [24]

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Absolutely, Craig. Both in the number of brands, the number of locations that you can hear in our comments about various expansions that occurred, whether Balenciaga, whether Saint Laurent, whether Gucci, whether Louis Vuitton, these stores are expanding. (inaudible) is expanding many of their locations. So luxury is strong right now. I mean, all those tenants I mentioned, every one of them individually was at least 7% or greater in their volume increase. So it's very good. They are very selective about where they go. It sometimes takes several years of planning to get them to look at a location and move into a location, but we're very pleased with our general luxury representations throughout our portfolio and its growth.

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Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [25]

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Great. And then just maybe a long-term view on net debt to EBITDA. Where you think you might be by the end of this year and next year? And what's your long-term goal? Where you want to get that ratio to?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [26]

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Look, Craig, I guess, I'd start by saying that our balance sheet remains solid. We noted on the call that we extended our primary line of credit and our larger term loan out until 2025 at favorable terms. We closed the Starfield Hanam transaction, which gave us some cash to pay down our line here in the U.S. Our coverage ratios are very healthy, and we're about [2 7] on interest expense, over 2x on fixed charges. And we've got one of the lowest cost of debt in the sector; we're slightly below 4%. And now our weighted average debt maturity is nearly 6 years. Debt to EBITDA is a bit higher than we want it to be where we are in the 8. We're going to be looking for ways to opportunistically address that. Obviously, growth in EBITDA is a piece of that. We are very focused and trying to get back down below 8x, but this is going to be an ongoing monitoring for us. It's ongoing focus for us. And if we can find more opportunistic ways like we did with the Blackstone transaction to get that number down, we're going to do that every time.

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Operator [27]

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Our next question comes from the line of Shivani Sood from Deutsche Bank.

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Shivani A. Sood, Deutsche Bank AG, Research Division - Research Associate [28]

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Apologies for belaboring the Forever 21 point, but just wanted to clarify one item. It sounds like FFO guidance for this year contemplate that all 17 locations remained open, but I thought, Simon, that you mentioned earlier that they didn't pay September or October rent. Is that correct?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [29]

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Well, we don't think they're all going to remain open. We think there's at least one that will close that's not a huge rent payer. But the way the bankruptcy happened, they did not pay rent in September, we think, in everyone's portfolios. That rent then goes effectively into a bucket that will end up as an unsecured claim after bankruptcy. We do not expect to recover that in any material way and in any time frame that we can evaluate.

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Operator [30]

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Our next question comes from the line of Rich Hill from Morgan Stanley.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [31]

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Bobby, first question for you. We've talked a lot about short-term leases for several quarters now, maybe even a couple of years. Is there any reason why this should not be transitory and maybe just a reflection of how some retailers are approaching the retail environment?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [32]

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Well, I really do think it's transitory. We're in a cycle right now where merchandising, occupancy, managing your NOI, all those things are very, very important. And we would like to begin to push rents and -- but when you go through a cycle like this, especially with bankruptcies and the backfilling that we're doing, it makes it harder. So you need to make judgments every day. And when you have larger tenants that you think are critical to the center in terms of merchandising, then you're willing to make some short-term deals in order to sustain them in the center, and we're making those decisions where we need to. And as we talked about, there were 6 phases that they were over 30 -- they are averaged about 30,000 square feet, they did impact our number. And we would have been 4% -- 400 basis points higher in our spread absent those tenants. So -- but we went through each one of the tenants. You would say, "Oh, I mean, we want every one of those tenants." So -- but they are all part of our numbers, and we have a small portfolio. It's -- everything gets accentuated, and it's a very volatile statistic. So I think in this environment, you will see some of it continuing, but eventually, we will get back to less of it.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [33]

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Got it. And Simon, maybe somewhat of a unfair question, but couple of quarters back, maybe a year ago or 2, you had some pretty nice statistics about how we should think about growth over the medium term. I think you got away from that long-term growth after the Blackstone JV. But is there any way we should sort of think about the new developments in the pool versus the properties that have been in the portfolio for quite some time from a growth standpoint?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [34]

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That's a pretty broad question, but I'll try to take it in chunks. I guess, in 2018, we were able to exceed our guidance measures and outperform. Largely on the back of the 3 development projects in Asia and our development project in Hawaii doing materially better than we had projected at the beginning of the year. There -- a little bit of that was positive outcomes on currency in Asia, but a lot of it, the bulk of it, was really core better performance than expected in those 2 assets. And we've been saying this year that our ability to outperform, again, would be outperformance in those assets, and you should not expect those to be dramatically different than what we said at the beginning of the year if it is great, if it isn't, we'll be closer to where we told you when we gave guidance.

The assets are performing fine, but they are not outperforming our expectations this year. They are really now, I would say, all of the development assets really are more part of our core than they should be looked at as the kind of growth you would see in assets that are moving towards stabilization. So with that, we really have the assets that are in the portfolio. Now we're all kind of in the numbers that you've seen with the exception of the expansion at Green Hills, which opened earlier this year and which will help growth in 2020 and will help growth again, we think, in 2021 as those tenants continue to -- that would lead to continue to get open and will have a full year in the run rate. That's really the only thing that, I would say, should be producing outsized growth compared to the rest of the portfolio next year and into the following year, with the exception of Anseong, which will open towards the end of 2020 and should provide a boost really in 2021 and 2022 as that asset gets to stabilization.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [35]

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Got it. Can you remind me, just really quickly, if Green Hills in the same-store pool at this point?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [36]

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It is.

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Operator [37]

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Our next question comes from the line of Caitlin Burrows from Goldman Sachs.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [38]

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I guess, maybe just one on the remaining 2 Blackstone joint venture sales. Is there anything you can share on the process there? And what's making it take longer than the initial one did? Is it just that it's harder to do and the properties are a broader -- something else?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [39]

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Caitlin, we always knew that these were going to be serial closings throughout the course of the year. We always knew Hanam would be first. So nothing has changed there. There are number of things related to both the Xi'an and Zhengzhou closings, which we really, at the end of the day, really are administrative in nature, and to some extent, things that we need to just workout with our partners there. Remember, we've got a couple of partners in those assets as well. So it's really -- it's nothing specific that's delaying it. I wouldn't even say that they are delayed. It's just that we knew they were going to take some time to happen. We knew they were going to happen later in the year, and we still believe that they will. There is nothing -- nothing has changed in terms of our expectation of the probability of this closing is happening. We're still highly, highly confident that they will, and we expect, at least, one before year-end or by year-end. And if one goes into next year, it won't be long into next year.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [40]

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Got it. Okay. And then maybe going back to San Juan. Wondering if you could give us any thoughts on what you're considering for the Saks box replacement. Whether it would be a multitenant or one use? And then I don't think that property is in the same-store pool, so just what would make it go back in?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [41]

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Well, on the tenant, if any of the above of what you just said, it could be 1 tenant, it could be a retailer, it could be an entertainment tenant, it could be 2 to 3 tenants. We're talking a whole range of people trying to figure out what we think would be most additive to the merchandising of the center.

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [42]

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And in terms of the same-store pool, it's not in the same-store pool right now. There is still a significant amount of work that we're doing with the Saks box and on the tenant base. We are fairly well leased there. I think we're about 90% leased close to it. We're occupied in the mid-80s, but there is still work to do there. So my expectation, and I think the expectations to the investment community should be that it probably does not go back into the same-store pool next year. What we had to -- what would make it go back into the same-store pool, I think, is when we get the occupancy level that look more like the portfolio as a whole. So we have a little more work to do to get it to that point.

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Operator [43]

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Our next question comes from the line of Samir Khanal from Evercore ISI.

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Samir Upadhyay Khanal, Evercore ISI Institutional Equities, Research Division - MD & Equity Research Analyst [44]

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Simon, at one point you had talked about this $20 million to $30 million of NOI that was going to flow through from redevelopment. So I believe at that time it was Beverly Center, the Saks box, it's short held. I think some of the Sports Authority boxes. Can you update us on that? I mean, kind of what you're tracking as we think about 2020?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [45]

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I can give you a general update. I think that the Green Hills contribution there is taking a little bit longer than we originally expected. That's really to do with the leasing environment. The merchandising is great. We're very happy with what's happened there, but we do think that it's just taking longer to get folks open and get all that done. So the contribution in '20 will be a little bit lower than what we expected. So you'll have closer to a full run rate of that in 2021.

Beverly Center is still work in process, but a positive work in process in terms of our ability to bring restaurants in, our ability to bring better and better uses throughout the center in luxury and things like that. 2019 contribution is looking like what we expected it to be there and the -- as to the Sports Authority boxes, those are pretty much looking like where we expected to be. So I would say when you look at the $20 million to $30 million by 2020, we're going to be shy of the $20 million, but not by a huge amount.

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Samir Upadhyay Khanal, Evercore ISI Institutional Equities, Research Division - MD & Equity Research Analyst [46]

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Okay. And I guess probably just switching gears, despite the distress we've seen in retail and you've held occupancy, you're expecting occupancy still to be at sort of at 95%, maybe to expand on that. And again, as we think about next year, what is the leasing momentum look like as you are kind of dealing with sort of these 2020 expirations right now?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [47]

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Well, look, we have solid demand as you heard in various ways throughout the call. Solid demand remains in our portfolio, especially in, I'll say, the top half of the asset. You can hear in the leasing program that -- Simon just talked about Green Hills, I mean, it's a very good example of the dynamic. I mean we attracted the very best tenants, say, Zara, Restoration Hardware, Crate & Barrel. The expansions that I mentioned from Apple and Louis Vuitton, adding Gucci into the shopping center, all the digital natives that we brought in, I mean, you're hearing that we're getting all the best brands. They are coming to our shopping centers. We did have more bankruptcies in '19 than we expected. And we made very good progress on the backfilling with a broad group of tenants, but we have a lot of backfill to do. I mean, I think at the end of the second quarter, we had 100 basis points of closures that we expected due to bankruptcies and we expected to backfill about 60 basis points of it by year-end. Well, since then we now have 140 basis points instead of 100, and we're expecting to backfill maybe 90 basis points of that. And this does assume that most of the Forever 21 locations are going to stay open, not all, but most. So you're seeing there is demand. It is solid. You can see in NOI weighted statistics that we were up 2.3%, but we were up 3.3% on an NOI-weighted basis. So you're seeing that we're getting stronger rent in the better assets, but we did get hit on Forever 21 and we did get hit on currency. And -- otherwise, the portfolio is doing well in a very difficult environment.

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Operator [48]

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Our next question comes from the line of Vince Tibone from Green Street Advisors.

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Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [49]

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Forever 21 operates on a much bigger footprint than most in-line retailers. I'm just curious what is the backfilling strategy for any of the Forever 21 spaces you get back? Do you think you're going to have to split some of these stores to get a backfill of quicker than maybe a single tenant?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [50]

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I think in many of the cases, I think, we have 6 or 7 locations out of the 17 locations that are 30,000 square feet or larger. And in a number of those locations, we will likely split it up and -- but we're in discussions on a number of them right now. In other ones, it will be a single tenant. So it just -- it depends on the location, the frontage, the options and we'll see over the next couple of years what we end up doing. But, yes, it's a combination of both. I think we only have, I think, 1 store up to 50,000 feet (sic) [square feet]. They did take a lot of stores, I'll say above that, even above 70,000 square feet, but again those were all Mervyn's generally, and we did not have any Mervyn's. So we never made one of those deals with them.

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Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [51]

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That makes sense, but it sounds like when you do -- if you were to split some of these NOI boxes, this would be a -- potentially a multiyear process versus maybe having something come back online in 2020. Is that a fair statement?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [52]

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Well, again, it's a fluid situation that's in bankruptcy, and we're negotiating with them. And to the extent that you negotiate a rent relief with them, then we want a shortened term, we want certain rights to take back in various locations. So we're going to be prudent about the merchandising in these centers. We're also going to be obviously focused on improving rents wherever we can, but it is a process that on average will take longer than just 2020. And -- but I think that will be very typical of this bankruptcy for all of the landlords in our sector.

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Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [53]

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That's helpful color. One more for me. Could you provide an update on the Beverly Center redevelopment, specifically the food hall that is not yet open? And just how close that overall property and project is to stabilization?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [54]

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Well, the center has very strong momentum. We've introduced all these tenants in that. We've strengthened the luxury, and we've strengthened the food. And the center has been well received by the customer. We've talked about, it really is the only place in L.A. to shop from fast-fashion up to luxury and everything in between, the sales have been good and they are near the historic levels that we ever achieved there. So as far as the eighth level goes, we have -- we are in very active negotiation. Forever 21 also has their location in that center up in the eighth level. So we have very active locations with food, with co-working, with entertainment. What we're trying to do is look at the eighth floor in totality and really create a destination or an anchor there, on the 8 level, that will really drive customers in the center generically, and largely in what I've just said nontraditional retail, so that you will have other reasons and other destinations to come into the center off of the eighth floor.

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Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [55]

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That makes sense. So there's nothing than imminent in terms of opening the food hall or sounds like everything is still in the works up there then?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [56]

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It is still in the works, and it's not imminent, but we would hope that we resolve what we're doing there imminently.

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Operator [57]

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Our next question comes from the line of Alexander Goldfarb from Sandler O'Neill.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [58]

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Simon, just to go back on a few points of clarification. I think you said that -- well, you did in the earnings release that Forever 21 was $0.03, and you said they skipped September, but I was unclear, they also skipped October? And then if they did, is that like another $0.03 that we should be contemplating or just trying to figure out how to think about the totality of the Forever 21 impact so far?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [59]

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No, they paid rent in the third quarter -- sorry, in October.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [60]

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Okay. So the $0.03 is just merely the skipped payment?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [61]

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The $0.03 is the skipped payment and the write-off of the straight line rent receivable.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [62]

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Okay. And then, Bobby, heading into next year, you said that 2018 or one of the past years was sort of an anomaly where the bankruptcies went like 1.7% versus the prior 3% this year. You expect it to be north of 3%. Is your expectation that next year is going to be similar, like, again, it's going to be like elevated bankruptcy year? Or what gives -- and if not, what gives you confidence that things will improve given that this year, I think, surprised most people?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [63]

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Well, it was clearly an elevated environment this year, and we're working through all of that. And -- but I think what you heard us say is that in '17, it was over 3%. In '18, it was half of that. In '19, it looks like it's going to be over 3%; it is 2.4% year-to-date. So our sense is that as you look at -- as we look at our watch list, as we look at the tenants, what their total occupancy costs are and how sales are doing category-by-category, tenant-by-tenant, our sense is that this has been a very elevated year, and it really has culminated in the Forever 21 issue. And as I said earlier, I really think they're specific to the Forever 21 business and a lot of judgments that were made by their leadership. So -- I mean, that's what we're dealing with. So our sense is that it should settle, and it should be better in 2020 on the bankruptcy front. We're not going to know until we move through 2020. We are going to definitely have reserves. We're going to have significant reserves. And I would say even in the context of all that's happened this year, we're still operating against what we told you in the context of the reserves at the beginning of the year. So -- but we are getting hit with Forever 21. We are getting hit with currency, and that's largely the differential.

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [64]

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And Alex, let me just add to that a little bit. There is no single tenant that we have that can have an impact like Forever 21 is having on our portfolio. The next biggest name out there that people are talking about is Ascena. They seem to be doing better, in general. We have less exposure to their underperforming brands, like dressbarn. But just to give you a sense, the ABR exposure that we have to Ascena versus Forever 21 is about half, and that's kind of the next larger name that people are focused on. So Forever 21, clearly, was meaningful in our portfolio. You can't replicate that next year in terms of any one tenant.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [65]

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Okay. And then, Simon, just to clarify, at the beginning of the call, I think you said on the FX front, that was solely related to the currency, not tourism at your centers. Correct?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [66]

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Correct.

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Operator [67]

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Our next question comes from the line of Michael Mueller from JPMorgan.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [68]

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Simon, I hear what you're saying about the lease spreads and how the stats may not tell the whole story, but I guess, when you strip out the short-term leases and you see that 3% level, that was 8% last quarter, and I think it was 10% before that or so. I mean, is there something that is positive that may not be as obvious from looking at that trend?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [69]

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Well, look, we really try to make sure everybody understands that spreads are a limited stat, and they really are just a stat. They are an output of a lot of other decisions that can be made. At the end of the day, Mike, what we really think you should be doing and everybody should be doing is focus on occupancy levels, which are excellent; focus on rent growth, which is there; focus on the merchandising, which is getting better; and think of it -- and think about it from that lens. At the end of the day, spreads are very volatile quarter-to-quarter. They tell only a story about closures and openings in that quarter, and they don't tell -- they don't give you the entire directional kind of look at the story. So yes, they go up, they go down. They are volatile quarter-to-quarter. End of the day, you should be looking at rent, you should be looking at occupancy, that's what matters the most.

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Operator [70]

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Our last question comes from the line of [Linda Tai] from Jefferies.

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Unidentified Analyst, [71]

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Maybe you said a little differently, given the slightly negative re-leasing spread this quarter and acknowledging a handful of shorter-term leases weight on it, how are you weighing the decision between rate and occupancy as you look out further?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [72]

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It's a balance, Linda. It's a balance. At the end of the day, the most important thing, particularly in this volatile environment -- and it is a volatile environment, the biggest thing that we're thinking about is NOI and merchandising. And -- so even though the spread stat may not look that great, that's not what we think about when we make these decisions. You need to have the best merchandising in your centers that continue to be able to drive the customer to those centers to continue to make -- to continue to drive sales at those centers, and there will be a connection between sales and merchandising and rents going forward. We think there still is the day. We think there will be even more linear going forward. So we're looking at NOI. We're looking at merchandising, for sure. At the end of the day, that's what you need to do to be able to navigate the volatile environment that we have today to get to what we think is a much brighter future for the great real estate in the U.S. If you have mediocre real estate, you may make different decisions. But in the best real estate, right now, it's about merchandising and it's about trying to drive NOI. It's not about spread.

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Unidentified Analyst, [73]

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And then how you're feeling about dividend coverage? It seems like increased CapEx and the pressure on NOI from troubled retailers could pressure AFFO?

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [74]

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Well, dividend coverage, for us, is -- it is a focus with our payout ratio right now is on FFO. It's about -- I'm sorry, on AFFO, it's in the high 70s. It did rise after we had a sale of those 7 centers to Starwood back in 2014. We have not grown our way back down into, call it, a range that we are a little happier with which is below 70. We have increased our dividend 22x in 24 years; we never decreased it. I will tell you that these are always Board decisions. The Board is very focused on it. They're comfortable with the dividend at these levels given our liquidity and given our upcoming capital needs. So as of right now, there is no reason that we think this is going to change, and we're comfortable with the dividend where it is. The Board ultimately makes those decisions.

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Unidentified Analyst, [75]

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And then just one last one, not to beat the dead horse, but in terms of your '16 to '17 Forever 21 stores, how variable is this population in terms of your willingness to accept rent cuts or closures, suggesting that these bases could be replaced at comparable or higher rents? And then to the extent, you do agree to rent cuts, would you gain kick-out rates or short-term leases?

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [76]

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Well, I think we have answered to those questions largely, but to say again, it's a whole negotiation. You're dealing with Forever 21, yes, you're dealing phase-by-phase, but it also matters to them what they're doing in one location versus another and the overall relationship with the landlord. So it can't be totally one by one. There is the broader relationship. And so we'll get some things that we like, they will get some things that they like. And net-net, they will continue to operate. And in some cases, we'll have the right to take back the stores; in others, we'll reduce their term; in others, we won't. And we'll -- net-net, our expectation has been articulated here and bookended here in terms of the range of outcome for this year and for next year.

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Simon J. Leopold, Taubman Centers, Inc. - Executive VP, CFO & Treasurer [77]

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But net-net, Linda, I think you got to focus on what Bobby said, which is this is still a negotiation. We're not going to negotiate in public on this. So we are a little hamstrung in how much detail we can give to you. When the situation is resolved in whatever way it ultimately is, we will be happy to provide some more detail on what we think that means for the future.

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Operator [78]

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We don't have any further questions. I will now turn the call back to Robert Taubman.

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Robert S. Taubman, Taubman Centers, Inc. - Chairman, CEO & President [79]

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Thank you, Christine, and thank you, all. We look forward to seeing you at Los Angeles, and welcome you to come to see Beverly Center. Bye-bye, everybody.

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Operator [80]

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