Simon Property Group Inc (SPG) — Q3 2017 Earnings Call Transcript

Thank you, Bridget. Good morning, everyone, and thank you for joining us today. Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer; Andy Juster, Chief Financial Officer; and Steve Broadwater, 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 website at investors.simon.com. For our prepared remarks, I'm pleased to introduce David Simon.

Good morning. The last couple of months obviously have been challenging as the country has endured the devastating impacts of natural disasters and tragedies, which have impacted millions of people across the country including many of our Simon employees and their families. Our thoughts and prayers go out to all affected. There has been significant disruption from Texas to Florida, Puerto Rico, and California. And due to the dedication and heroic efforts of our field team members, thankfully, all of our personnel got through these events. Across all of our platforms, we closed 45 of our centers for a combined 412 days due to natural disasters including the one that occurred in May at Colorado Mills due to a hailstorm. All of our centers in Texas and Florida have been back to normal. Our centers in Northern California are now back to normal operations as well after the horrific wildfires there. And we expect Colorado Mills, which has been closed since May, to open in time for the holidays. Our two centers in Puerto Rico are currently not open, and we are in the process of making repairs where possible. We expect full restoration of these centers to take some time given the damage to Puerto Rico's infrastructure and availability of building materials. We are fully insured for this event including business interruption insurance. We currently expect the closure of Puerto Rico centers to impact our FFO by approximately $0.03 in the fourth quarter of 2017, and this reduction is currently included in our guidance. I couldn't be more proud of the Simon team who have demonstrated courage, resilience, perseverance, and how they professionally responded to these unprecedented events. Now, let's talk about the third quarter. We had another very productive quarter and are very pleased with our financial results. Results in the quarter were highlighted by funds from operations of $2.89 per share, an increase of 7% compared to the prior year. For the nine months ended, our comparable FFO per share growth was 6%, which, without question, will be at the high end of our peer group. We continue to report solid operating metrics and cash flow growth. Our malls and outlets occupancy ended the quarter at 95.3%, an increase of 10 basis points compared to the occupancy at the end of the second quarter. Leasing activity remained solid. Average base rent was $52.42, up 3.3% compared to last year, reflecting strong retailer demand and pricing power for our locations in the malls and outlets. Re-leasing spreads of $7.21 per square foot, an increase of 11.2%. Reported retailer sales per square foot for the malls and outlets was $622 compared to $604 in the prior-year period, which is an increase of 3%. Total portfolio increased 4.8% year-to-date or $212 million and 3.9% for the third quarter. Comp NOI has increased 3.6% year-to-date and 2.5% for the third quarter. I remind everybody, once again, we do not include lease settlement income in our comp NOI disclosure. Also, as a point of reference, our third quarter growth is typically less than the growth rate we achieved for the first half of the year if you are interested in that and have a desire to look historically. Now, on an NOI-weighted basis, our operating metrics were as follows: reported retailer sales on NOI-weighted basis would be $776 per foot compared to $622 per foot; average base rent would be $68.54 compared to $52.42; leasing spreads would increase 17% compared to 11.2%. And these weighted metrics, again, reinforce the quality of our assets, and they're not to be ignored. At the end of the third quarter, redevelopment and expansion were ongoing at 31 properties across all three of our platforms. During the quarter, we opened a significant expansion in Allen Premium Outlets in North Texas. We have a significant opportunity to continue to improve our portfolio through the densification of our centers with the addition of mixed-use components, hotels, multifamily, office, and others, and included in our supplement this quarter, you'll begin to see that list of activity. We have a number of projects underway. We'll continue to add different uses to our centers where we see the opportunity to generate accretive returns. Construction continues on several major redevelopments and expansions, including The Shops at Riverside, Aventura Mall, Toronto Premium Outlets, just to name a few, and we expect these, again, to open over the next 12 months. We recently opened The Shops at Clearfork, a great new center. This open-air center is an excellent example of the type of vibrant mixed-use, community-centric environment we create, along with our partners. We have carefully curated a mix of shopping, dining, entertainment, and office. And The Shops at Clearfork will be the dynamic hub of a timeless asset in the terrific city of Fort Worth, Texas. Construction continues on two new outlet centers, both in really good markets, Edmonton, Canada, and the north side of Denver, Colorado, which will open in the spring and fall of 2018, respectively. Our share of redevelopment activities continues to approximate $1 billion. A simple update on capital markets. During the first nine months of this year, we closed on 12 mortgage loans totaling $2 billion: our share of that is $1.4 billion; weighted average interest of 3.12%; term of 6.8 years. Our current liquidity is $6.5 billion. Our balance sheet is as strong as ever. We have the highest investment-grade credit rating in the industry, more than five times interest coverage, and I again reinforce our financial flexibility is a real advantage that cannot be overlooked but continues to be overlooked. Today, we announced the dividend of $1.85 per share for the quarter. That's a year-over-year increase of 12.1%. We will pay $7.15 per share in 2017, which is an increase of 10%, and look out for 2018, which will be higher. We are updating our guidance range to $11.17 to $11.22 of FFO per share. That is the highest in the REIT industry. This is an increase of $0.03 on the low end of the range compared to our prior guidance, even with the $0.03 reduction for the quarter I mentioned previously due to the closure of our two Puerto Rican assets. So, finally, as you can see from our results this morning, we produced yet another quarter of impressive results and metrics. We continue to invest in our product and generate the kinds of returns that will continue to grow our earnings, cash flow, and dividends. We're now ready for your questions.

Good morning out there.

This is not that far out there. We're in the Midwest. It's not like we're way out there, okay?

Well, that would be...

There is activity for all of those investors, west of the Hudson. I just wanted to point people, I want you to point that out. Alex, what can I answer for you?

Well, thank you for that. So two questions. First, just in Puerto Rico, can you just tell us sort of a breakout number of tenants who are paying, or said differently, the number of tenants who aren't paying? And then on the business interruption insurance, maybe for there or elsewhere, what the impact is and if we should expect anything into next year or if the $0.03 is really just in the fourth quarter this year and next year we shouldn't expect any impact?

Yeah. I'll give it to you, really very high level. So, we've taken a deductible. We had a deductible expense that went through the P&L in the third quarter for Florida and Puerto Rico. After that deductible, we're fully insured. In the fourth quarter, there is nobody paying rent at this point. We don't collect business insurance until all of that is resolved. And they won't begin to pay rent until we restore the building. And I wish I could give you a sense of that, but it's really going to depend on the next couple of months because there is a lot going on down there and power needs to be restored permanently. And as I said, we're doing our repairs and restoration work concurrently, but it's going to take some time to get it going. So, that $0.03 is what we expect. That would have been essentially our net operating income for those two properties in the fourth quarter. It could drag into 2018. However, if it does, we would expect some of that eventually to be recouped through the BI, but we can't book the BI until it's actually cash collected. And so, when we do our earnings and 2018 guidance, we'll have a better idea of exactly the impact. Again, I'm more focused on the tragedy at Puerto Rico. At the end of the day, if you extrapolated the $0.03, that's less than 1% of our business. So, it's obviously immaterial. But we're more interested in what's going on there. If you take out our redemption here, you know that we earn well over $11.50. So if we're at $0.11 or so, that's basically less than 1%. Even you, Alex, can do that math, right?

Yes, although I do have a colleague for backup if need be. Then the second question is, in the other income breakout, the lease settlement income jumped and then marketable securities gains. Could you just provide a bit more color? And then on that lease settlement, was any of that from Teavana, or is that still outstanding?

None of that is from Teavana and there's been a little bit more lease settlement income this year. Again, that's not in our comp NOI. As you know, we did own Seritage stock. We did sell that. And I would only point out for those of you that – I would hope most people would study our P&L without making statements, is that we also had more than offsetting what I'd call unusual expense on the expense line, all of that you can see in our 8-K, in our P&L. So I think like this is all washes. If anything, it's a little bit more negative, but that's up for you guys to determine. And we outperformed even with the deductibles, even with the extraordinary expenses that we incurred that were higher than what I'd call the higher than normal lease settlement income, and obviously the Seritage marketable securities gain. It's a gain by the way, not a loss. Let's keep that in mind too.

Okay. Thanks, David.

Hey, good morning. It's Michael Bilerman here with Christy. David or Rick, can you just talk about occupancy in terms of the trajectory as we move into the fourth quarter and into next year? And right now in the third quarter, you're sitting about 100 bps over last year, which was a record high. You got to 96.8 bps by the fourth quarter; you're at 96.3 bps in the third quarter. How should we think about the trajectory into the fourth quarter relative to that spread, and how does that line up as we move into next year from an occupancy perspective?

We should have improvement in the fourth quarter. That's number one. We're not going to give you a number. Number two is we give you guidance in 2018 in February, but the reality is the only reason why it's down is we've had some extra bankruptcies this year. We had a bunch in 2015. We had less in 2016. We had a bunch in 2017. The portfolio is in excellent shape. So, we'll continue to improve upon that. And we've done more leasing this year. I don't have the exact number. Rick might have the total number. But we've leased a lot of space this year, what, over...

7 million square feet.

No, it's more than that, but the point is – and we're dealing – the issue with bankruptcies is you're at the whim of the court. So you have a lease, they can cancel it at a moment's notice, and it does take time to lease. But we've leased over 10 million square feet this year. That's a lot of leasing and we'll continue and improve. And like I said, I think we'll have an uptick in the fourth quarter.

Right. I was wondering whether that year-over-year spread is going to continue to widen. So you've gone from 40 basis points, 70 basis points to 100 basis points relative to last year given some of the bankruptcies. How we should think about how the fourth quarter is shaping up, whether that 100 basis points stays flat or whether it narrows as people start to take the space?

We had a lot of bankruptcies go through the third quarter. You can't lease space in a month or two. It's certainly harder to lease space to open up for the fourth quarter once you get that space back in the third quarter because you have build-out and so on. But like I said, we have an uptick, and it's essentially all on the margin the way I look at it.

And then second question in terms of capital, and you talked about how strong the balance sheet is and how much liquidity. I noticed that you didn't buy back any shares in the third quarter. Can you just elaborate a little bit about why that was the case and how that differed relative to what you did in the first half?

The simple answer to that is we've got – we're very close to some significant redevelopments that we're excited about, and we are very conservative. So we're creating a pile of financial power that we want to take advantage of, and we've got a little bit more redevelopment that you'll see in the next, I don't know, month or two. That's really exciting for the portfolio, and we figured we might as well hoard some cash. And actually, we also love raising the dividend. I love raising the dividend 10% a year. I really like that. So between the redevelopment, raising the dividend, having a balance sheet that cannot be compromised, with significant firepower, I know it's all ignored right now, but I don't ignore it, and I'm going to rely on my judgment that that's stuff that I shouldn't ignore. So I know no one wants to pay attention to it. I know nobody cares. But raising that dividend 8%, 10%, 12% a year, having a hoard of cash to put back in the portfolio of accretive returns is really exciting, and having a balance sheet tried, tested, ready to go to work is really a competitive advantage that I really like, and that's what we're going to do. So this dividend is going up, the earnings are going up, the balance sheet is going to get stronger. That's the model we got. That's what we're doing.

Okay, all right. Thanks, David.

Thank you. I noticed on the development activity report that the Edmonton project is listed under Mills. I wondered if this indicates a different leasing approach that maybe is broader in value scope than just outlets?

It will be. It's always been designed as Mills. Our partner there actually owns The Mills in Toronto and in Vancouver. And this has always been organized as a Mills. It's enclosed. It's what I'd say bigger in size. So it's always been kind of – we consider it more Mills-like with the boxes and the outlet and the entertainment uses.

Okay.

So our partner is the owner of Vaughan Mills and the one that they've just opened in Vancouver as well.

Great, that's encouraging.

Yes.

And then it seems like you may be taking a change in direction on the new redevelopments, maybe more densification, or is that something that I just need to wait the next couple of months for?

I think we've got a terrific portfolio set to do. So, the answer is yes, Craig. I think you'll see more and more stuff from us along those lines. Obviously, we're not going to do it just to do it. The idea is to increase the value of the portfolio. But Rick and I went over plans yesterday at King of Prussia. King of Prussia is basically a $2 billion asset. We had a Penney that just didn't fit there with Neiman and the Nordstrom and the Lord & Taylor and the Bloomingdale's at all. You know the center very well. It's very big. We didn't need another department store. They've closed their store there. We could have done traditional, but the fact of the matter is the pivot of what's the front and what's the back of that center has evolved over time. And we have the ability for a hotel, apartments, office, and complementary retail with outdoor work and play space. That's going to be unbelievable for that community and, listen, we've got to do it. We got to get it done. We've got to open it. But I think that a lot of folks are missing those kinds of opportunities and are kind of – you cannot, one thing you cannot do is replicate the real estate that we have and that's a unique unbelievable opportunity. It's going to be a significant investment. It will be our Hudson Yards version for suburban, but wealthy King of Prussia. It's a great market. It's a growing market. That's what having good real estate is all about and it's underappreciated, but I get it. We've got to do it. We've got to prove it. But if you've seen some of the mixed-use stuff that we've done over the past few years, you've seen that our core competency is increasing in this area. So again, we will devote capital to those kinds of projects that are very exciting and we'll take that $2 billion asset to, I don't know, $3 billion, $3 billion plus, why not, right?

Sounds good.

Thank you.

Thank you.

Sure.

Hi. Good morning.

Hi.

Hi. Just a couple of quick things, David. One, I think you mentioned that you did have a deductible hit in the third quarter, but I don't think you quantified it. Could you give us that number?

$2 million.

Okay. Thank you.

It's $1 million per occurrence. The flood in – Harvey and all the flooding did not reach the deductible expense. We had other expenses, but not up to that number.

Okay. Thanks. And then I also noticed on that other income page and expense page, professional service fees were up quite significantly, and I also noticed that the regional and home costs were down. I just don't know if you can provide any commentary around the large jump from professional fees in the quarter?

Well, it's mostly associated with legal expenses. As you know, we had this situation with Woodbury. You know our point of view in terms of how we felt about that, but they were significant, significant expenses. That, to me, is a one-time expense. And then obviously we're going to be – we're running our business as efficiently. We have the highest margins in the business. We've got the best overhead percent of revenue in the business. We take pride in that, that we have the highest margins. We take pride that we have the lowest overhead, again something that's underappreciated, and we'll continue to do that. We did not have an LTIP for the senior dudes because we knew this year would be a little bit tough. It's actually coming out better than we thought. We're hitting every number. We've got best growth in the industry. We've got the best balance sheet. Our operating metrics are – sales were up. All of that is pretty good. But you know what? We thought it might be a little tough. And so we tightened the screws, and that's what I like about my team. They're willing to tighten with me, and we tightened.

Okay. That's good. And then I guess just lastly on that 10 million feet that you talked about leasing, I don't know if you or Rick could maybe provide a little detail, just broadly by category. Presumably, a lot of that was other things besides apparel. But can you just kind of help us give a breakdown of maybe how much was traditional apparel, how much was home, food, and just some of the broad categories to show the diversity of leasing?

This is Rick. In our new leases that we have been signing, the percentage devoted to apparel is down about 20%. The percentage devoted to food and entertainment is up about 20%, and the number is over 11 million square feet this year over our three portfolios, which is malls, mills, and premium outlets.

Okay, thanks. That's it for me.

Thank you.

Thanks. Hey, guys. I just want to say being from the Midwest, I agree, it's actually not that far out there.

Right.

I had a question for Rick. I was just wondering if you can give us some high-level color here on the sales and traffic trends of the premium outlets versus the malls. And then maybe, just as a follow-up, can you comment on your watch list and any changes there? Maybe digging in a little bit, are you worried that we could get another bankruptcy or adverse retailer event here late in the year, whether it's a Charlotte Russe or anyone else of the troubled retailers out there?

We're not going to comment on individual retailers. That's not our place. Our premium outlet traffic is up. The mall traffic is stable. We're not seeing the kinds of trends that have been publicly reported by all these algorithms and black box things that have been out there and talked about in the trades. It's very stable, and frankly, again under-reported, 2017. Yes, there were a lot of bankruptcies. But frankly, we're also having many of our tenants get reorganized; emerge with very, very good balance sheets, and in the last several months, you've had Gymboree, Payless, rue21, all come out with restructurings with very stable balance sheets and growth strategies.

Yeah. On the occupancy that Mike Bilerman asked which I probably should have mentioned, I mean part of the dip in occupancy that we have is also we've added new product to the portfolio. So, they obviously, both in redevelopments, expansion space as well as new developments, they are never up to or 95% and I don't know what that number is...

About 30 bps impact.

Okay. So it's about a 30 basis point impact and I probably should have answered that when Michael asked in any event. So part of that is just the portfolio is expanding and you tend not to be initially at 100% occupancy when you open. But yet, once the space comes in, the space comes in our number and it is what it is.

Okay, I appreciate that. And I guess, David, I was just wondering if you could just kind of talk about your appetite here for disposition, specifically kind of the lower end of the portfolio. You've talked about NOI-weighted results. So obviously further highlights how much of the revenue and value is really driven by the top. So as I think about the 13 – I think you have about 13 assets in the other bucket and maybe just more broadly some assets where, for whatever reason, the market or maybe demographics are moving against it. Does it make sense to sell those sooner versus later, or just how are you thinking about pruning the bottom from here?

Look, I think it's a question of your assets that don't fit with our portfolio, we generally have been a seller or spinner-offer of assets. The market is not great. On the other hand, I think we'll have at least a sale potentially by yearend or early next year. But it's a very simple – there's no asset here that we lose sleep over or that we have consternation over. And it's a function of – if we get the right price, we'll sell. If we don't and the present value of those cash flow is greater than the price, I mean – to me cash flow is still – there is nothing to be embarrassed about. I know this world doesn't want to focus on cash flow, but there's nothing to be embarrassed about cash flow. And I can take that cash flow and invest in something that's higher growth and that's okay. I mean, that's kind of what I think people like me should think about. But we'll continue to prune the portfolio. We're in pretty good shape, if the value is right, but we're not going to do anything that's a fire sale because we really have no need to – we can operate effectively. The thing about us is we can operate effectively from luxury centers to terrific suburban malls, west of the Hudson, to outlet centers, to the Mills product, to Europe, to Asia, to mixed-use properties. I mean, we have the ability – I mean, the fact – if you had only seen how this company dealt with these devastations, our multiple would go up, okay? You don't see it, but I see it. We had crews of people. We chartered planes. We had crews of people go down to Puerto Rico. We had people in the field that put their own personal situation on the back burner to deal with our physical assets. Crazy, crazy stuff. So, we can operate. I mean, people forget that we lost a mall in Nashville because of a flood that was shut down for, I can't remember, a year-and-a-half, two years? And we built it back better than ever. We'll build Puerto Rico back better than ever. Those assets are important to that community. We will deliver, and that's what people lose sight of. They want to focus on a metric here and there. I don't know. Sometimes it's interesting, but I don't know what you're asking. I forgot. But the point is, thanks for your question. If I didn't answer it, ask it again. Something about asset sales. The point is we operate in any kind of environment. We do extraordinary stuff. We give back to the community. The Simon Youth Foundation is important, check into it, look at what we've done for the Komen Foundation with Breast Cancer Research, look at the fact that our operating income, somebody reported sales that had operating income of $347 million. We had $1 billion, $35 million of operating income, 3 times, what somebody else had, and focus on that. Focus on those kinds of things I think would be helpful in your analysis. You should tell us what you want us to focus on. On the other hand, it's a two-way street, my friend. Thanks for your question.

Thanks for your time.

I think he called uncle. Next.

Hi. Good morning. I was just wondering if you could talk about on the sales side, you guys did have a nice 3% increase this year year-over-year which is the strongest since 2013. So I was just wondering if you could comment where in the portfolio that was, if it was more the international tourists, high volume centers coming back or if it was across the board?

Simply put, it's basically across the board. And you've got to remember, September, we've dealt with a lot of crap. So I mean I was really pleased with that number. It's across the board. And I think that there's definitely been a pause with all these natural disasters, but I mean unfortunately they hit us hard from Texas to Florida. Don't underestimate the Las Vegas impact. Thankfully, we had nobody involved. But it's a tragedy that changes the psyche of the consumer for a period of time. I think I heard from Southwest Airlines that their flights down to Vegas are down. It will come back, but we had to deal with that. And unbelievably, I mean we've never had malls where we had to shut because of fires. The untold natural disasters, what's happened in Northern California, it's been unbelievable. We had our partner in a mall there whose own home burned down. I mean just tragic, tragic stuff. And then obviously, the Puerto Rico situation is at another level. So, even with all that said, our sales came in pleasantly surprised. I think the consumer mood is better. Look, we can talk online or not online, the reality is, I saw something interesting, how physical books outperformed electronic books, who knows, but maybe that's a trend. I think you'll see that as well. People get bored despite all of the rhetoric out there, you would expect me to say that. But generally sales and traffic are not bad, pretty good absent obviously these things going on and the tragedies of these unfortunate circumstances that we've had to deal with. And again, I wrote a letter to the company. I can't tell – and I don't know how many people listen from the company on the call, but I can't tell you how people have stepped up in this company dealing with these crazy, crazy events. Proud of the organization.

Thanks for that response. And then I was wondering on recent outlet development projects. Denver is under construction. It opens about a year from now. I'm wondering how the pre-leasing is going there and how that trajectory kind of a year from opening looks at this point versus I know Norfolk opened earlier this year and others of the past.

Great. I think that's going to be great. Denver is a great city. The growth there is phenomenal. It's a great site right on I-25. We are ahead of the outlets, took a bunch of retailers there last month. I think, we've got a great design. I think it will be a great addition to the community there.

And I would say to you that there is still considerable demand in the outlet sector. Those tenants are growing and are actively looking for new opportunities. So, Norfolk now is performing very well and has got everyone open. And it's a lovely physical plant right on the water. We incorporated outdoor dining there. I mean, the – I would hope you go visit our product, Clarksburg, because the level of design and customer amenities is substantially elevated along with the tenant mix in these properties.

Oh, that's great to hear. Thanks.

Thank you.

Thanks. Hi. David, I think you said your NOI-weighted spreads were 17% in the quarter. When I look at my notes from last quarter, you talked about 14% spreads. Is that an apples-to-apples methodology so they actually increased in the third quarter?

Yes, sir.

Okay. And I guess on the development pipeline, about $1 billion right now. Where do you see that number trending over the next two years or three years?

I think it's got the potential to go up, frankly, because, as you know, we're going to have some opportunities like the King of Prussias of the world that are going to be really dramatic and change the face of some of these great pieces of real estate. So I think you'll see more from us in this area, even this year, that would tend to suggest that that number could be higher. Look, we are very focused on the redevelopment part of our business, investing in our product. We're actually in very good shape there. We've done a lot, as you know, since 2010. And we're still very optimistic on – we'll announce at least one more expansion of a material asset this year yet, Rick, probably, right...

There should be.

... with really good tenant demand. We'll announce another major mixed-use development at some point along the lines of King of Prussia that I talked about. So I think we've got good stuff working.

Got it. And I guess maybe for a second going back to the first question in the spreads again, going from 14% to 17%, does anything jump out over the last three months in terms of what would have caused that increase?

No, we have such a large portfolio that they would have to jump really high to change a number.

Got it, okay. That was it, thank you.

Yeah, no worries. Thank you.

Hey. Good morning, everyone. I think I had a little headset technical issue there before. But, David, you talked a lot about the dividend and the importance of the dividend, and obviously you increased it this quarter and alluded to increases in 2018. I know a lot of this has to do with taxable income and REIT rules and things like that. But I was just curious. As the markets continue to not really pay attention to the discount between the private market values versus your own stock, would you consider increasing the dividend more than you otherwise would in 2018 to continue to give back some of that return to shareholders?

I think the simple answer to that is yes. If you look at where we are versus what we paid, obviously to keep increasing that level off a bigger base, that's a pretty big number. And I think the simple answer is yes. We have the ability to continue to grow our cash flow. And like I mentioned, I just encourage people to look at our operating income for the third quarter. It was $1 billion – operating income essentially being FFO, net income plus depreciation, more or less. It's $1.035 billion. Nobody gets excited about that number, but guess who does?

Guess who does?

I do. And you put it in comparison to other companies and some of their multiples, we are I think truly undervalued. But I'm not going to – Mr. Market is Mr. Market. We can only – I think a good way to demonstrate that is by raising our dividend on a consistent basis. We'll continue to do that.

Okay, thanks. And then just maybe going back to your comments about the psyche of the consumer, obviously there's been a lot of unusual things going on in the country here and with the natural disasters and Las Vegas, as you mentioned. Overall traffic sounds like trends are stable. But I'm just curious if the traffic trends in Florida, Houston, and Vegas as well, sounds like maybe not Vegas, but Florida and Houston, have they returned to normal?

It's interesting. What happens – unfortunately, we've seen this before. What happens it does – and I will say this to you. Prior to this like string of natural disasters, the business was actually – sales and traffic were up. They were good. And what happens generally is you lose the week before because there's the preparation and then you lose two, three, four weeks after because obviously people are not yet back to normal. Houston, having just visited Houston, we didn't really have that much property damage, but there was an unbelievable amount of damage to that city. Now, give it to Houstonians and Texans, they come back fast and hard. Florida probably is wild because it was East Coast, West Coast, East Coast, West Coast. That hurricane couldn't make up its mind where it was going to hit. But the reality, it does slow traffic and sales. Florida is back a little bit more normal. I think Houston took a little bit longer to get back to normal given the amount of devastation there. Vegas, we were having a great September in Las Vegas, great. I think that's going to take some time. What happened there is horrific. But we'll see. It's so hard to predict, but these things, they don't just snap back day one. It does take time for people to get in their normal pattern. And I don't blame them, frankly. They've got other things to worry about.

Yes, I agree. Okay, thank you.

Sure.

Thanks. David or Rick, going back to your watch list and some questions about that, I was hoping that your early read on whether 2018 will be a better or worse year for store closures and bankruptcies based on what you've seen with tenants dropping off the watch list and reselling this year.

Look, I know we all want to talk about 2018. As you know, we don't talk about 2018 till our year is done. You're more than welcome if you would like next week, you can come to Indianapolis, spend. We go through space by space 200 properties, so it's mind-numbing. But we're doing our business plan for next year. If you want to burn a day or two or three or four or a weekend, come on in. We'll show you how we run the business. But we'll tell you about 2018 when we tell you about 2018. All I can tell you is that we've got a great real estate operating model that has historically worked over many years and many cycles. We've weathered lots of storms one way or another. We'd certainly love a better natural retail environment. It's not quite there, it was headed there. We'd like a more stable retailer environment. We're diversifying away from the have-nots to the haves. That takes time, but you can't duplicate our real estate. You can't duplicate our balance sheet. You can't duplicate the fact that this company can operate across this country as well as in many parts of the world. And we put it all together. We put it in a blender. We pull the right triggers, and lo and behold, we grow our earnings and that's what we're all about. I don't expect 2018 to be any different than the history, but I've got the next two, three weeks of planning for the execution of 2018. But like I said, we planned for 2017. We're doing a good job in 2017. We're overcoming a lot. Whether it's retailer bankruptcies, natural disasters, changing market conditions, we did the same thing in 2016, 2015, 2014, 2013, 2012, 2011, 2010, even in 2009. It is what it is.

Okay. I appreciate that. And then just going back to that second question, going back to re-leasing spreads, which I know is one of your favorite topics, you talked about the NOI spreads getting better, value-weighted spreads getting better this quarter, yet the ones on page 23 of the supplemental, that spread got a bit worse this quarter versus last year.

I think that's a simple – the simple thing is that we had more. We put everything in there, so we had more box deals, so that tends to damper down the spread for the entire portfolio as opposed to the ones that don't have as much box activity in the NOI weighted. It's as simple as that. It's not always like that, but...

Okay. And you – but just – yeah. No. Yeah. Just to be clear here though. If we're thinking about the impact to your cash, same-store NOI, are the numbers, the spreads that are on page 23 more important or the ones that you're citing on the NOI weighted spreads?

Look, the reality is there's so much that goes into NOI spreads is just one element of it. So, I think, you put it all in the blender, and – look, we've been operating with our NOI with the strong dollar with our overage rent down significantly, yet we've produced pretty damn good NOI – comp NOI number growth. So there's so much that goes into it that it's hard. I would tend to look at – if I had to look at it, it's probably more important to look across the board, but they're both metrics for you to Q1. I don't – honestly, I've never run my business for metrics other than one, and guess what that is?

It's dividend growth.

Well, no, no, no. Cash flow growth, okay. Okay.

Thanks.

Okay. We've exhausted everyone including myself, and for that, please join us next week as we go through space-by-space. Rick Sokolov will set up the appointments, and have a great weekend.