Simon Property Group Inc (SPG) — Q2 2018 Earnings Call Transcript

Thank you, Almeda. Good morning 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 IR website at investors.simon.com. For our prepared remarks, I’m pleased to introduce David Simon.

Good morning. We’re pleased to report another record quarter with operating and financial results. Demand from tenants for space in our highly productive centers is increasing. We continue to redevelop our irreplaceable real estate with new exciting dynamic ways to live, work, play, stay, and shop that will further enhance the customer experience. We continued identifying new unique and strategic development opportunities globally that will extend our geographic reach and create a new generation of world-class destinations on an accretive basis. And let me turn to results, which were highlighted by funds from operation (FFO) of $1.06 billion or $2.98 per share, an increase of 20.6% compared to the prior year. We continue to grow our cash flow and report solid key operating metrics. Total portfolio NOI increased 4.5% or approximately $135 million year-to-date. Comp NOI increased 2.3% for the year-to-date period. Leasing activity remains solid and continues to improve. Average base rent was $53.84, up 3.3% compared to last year. The mall and Premium Outlets recorded leasing spreads of $7.32 per square foot, an increase of 10.7%. We're pleased to announce that retail sales momentum continues to pick up in the second quarter. Reported retailer sales per square foot for malls and outlets were $646 per foot compared to $618 in the prior year period, an increase of 4.6%, which is the largest increase over the last four years. Retail sales were strong across the portfolio with sales productivity increasing each month throughout the quarter. Our mall and Premium Outlets occupancy ended the quarter at 94.7%, an increase of 10 basis points compared to the occupancy at the end of the quarter this year. Importantly, on an NOI weighted basis, our operating metrics were as follows: reported retail sales on an NOI weighted basis was $813 compared to $646. Occupancy is at 95.6% compared to 94.7%. Average base minimum rent is $70.77 compared to $53.84. Turning to a new development, we opened the Premium Outlet Collection in Edmonton, Canada, making it our fourth outlet center in Canada. It's a terrific opening. It's the only outlet center in Edmonton, and so far locals and tourists have really appreciated the new project. Construction continues on several additional new outlets: Denver, Colorado will open in September; Queretaro, Mexico will open in December; and Malaga, Spain will open in the spring of ’19. During the quarter, we also announced a new joint venture with Siam Piwat, a world-class retail and real estate developer to bring our internationally renowned Premium Outlet experience to Thailand. This will be our first outlet in Thailand, adding to our already successful joint ventures in Japan, Korea, and Malaysia. Our center in Bangkok is projected to begin construction later this year and will be a destination of choice for the 50 million metro area locals and the country's very strong tourism, with over 32 million visitors per year. At the end of the second quarter, redevelopment expansions were ongoing across all of our platforms in the U.S. and internationally, just to name a few, we're expanding in Vancouver, Canada; Ashford, outside of London; as well as our big transformations with Brea, Ross Park, and King of Prussia, with many more in the works. Capital markets-wise, our balance sheet continues to be industry-leading. Our net debt to EBITDA was 5.4 times, well below our peer group. Fixed interest coverage was 5 times. Only 5% of our debt is variable rate. We refinanced approximately $2.4 billion of mortgage debt, with our share being $850 million at an average rate of 3.98% over a term of 8.9 years. Our current liquidity is $7 billion, and we repurchased 514,000 shares during the quarter for approximately $80 million. We also announced our dividend this quarter of $2 per share, an increase of 11.1% year-over-year. We will pay at least $7.90 per share in dividends, an increase of more than 10% compared to the $7.15 paid last year, and sometime next year we will have paid $100 per share in dividends throughout our public history. Finally, we're pleased with the Supreme Court's decision. As you know, we have been very vocal about it, and we do think this will help level the playing field between physical retailers and online, and hopefully the communities that those physical retailers and those properties serve. Regarding guidance, we raised our full-year guidance from $12.05 to $12.13 per share. This is an increase of $0.09 from our original prior guidance and represents 7.5% to 8.2% growth compared to our FFO of $11.21 per share for 2017. Finally, I would just like to say it was a very good quarter, and we continue to grow our cash flow with our good earnings momentum. We're ready for questions now.

Thank you. Good morning, good morning out there.

Good morning.

Yeah. So my first question is, I don't think you talked about the big jump in other income, but in aggregate, if you could just talk about what the drivers were in there. And then also what your thoughts are on the impact of the change in internal leasing costs to 2019? Some of the other companies are starting to provide some estimate, for the analysts to throw up their numbers for 2019.

Yes. The jump in other income was basically a gain in converting our Aero IPCO investment into shares of Authentic Brands Group, and that number was offset by a significant decrease in lease settlement income. When you net the two, it's essentially a positive $25 million, roughly. The good news on that, Alex, is, I know there were a lot of naysayers on the Aero deal. We're way in the money. We've already converted into a significant profit, and Authentic Brands Group is a great company. We're a shareholder of around 6% roughly and we continue to think that company will do great things, and it's great to be a partner associated with Jamie Salter and his team, as well as Lion Capital, General Atlantic, and Leonard Green. Obviously, a very high level, as well as General Growth, frankly, a very high-level group of shareholders that will continue to accumulate brands and present opportunities for us. Obviously, we had a pretty significant decrease in lease settlement income. If you go quarter-over-quarter, and on the leasing, we're still finalizing it, but it'll be under 1%, under 1% of our run $12 plus. So I hope - I know you're smart, and I hope you can do that math.

I have back up just in case. The next question is, you know, a lot of headlines recently over Tesla them asking for cash back from their suppliers. Clearly, it's been a big driver of mall traffic. So can you just talk a little bit about your thoughts on Tesla? And then also just what we heard last week from some of the other retail companies, it sounds like the pace of backfilling space has increased. So maybe if you could just combine those, how you're thinking about the pace of backfilling tenant?

Yeah. Just - Tesla is a great company, a great product, no concerns. I'll let Rick talk about retailer demand. And you know, I would say we feel pretty good. But let Rick add to that.

In fact, it is accelerating, and there is increasing interest you saw in our filings. We've done a lot of new leasing. Again, I won't incur David's wrath by listing all the tenants that we're doing business with. But there are a lot of them. We came out of our meetings with a significant number of open device across a broad swath of tenants. And as I said before, they are coming from e-tailers, international, existing tenants, and brand extensions from our existing tenants, along with new tenants. And that is feeding our pipeline, and I think you're seeing that as you walk our property.

Thank you.

Sure.

Hey. It's Michael Berman here with Christine. Happy Monday. David, you included a new slide in the supplemental slide 28 on the development activity summary, where you sort of broke down the share of net cost of the developments in the quarter pipeline between the platform, and then redev and dev. I'm wondering how you think about that densification piece of 15% today. But really each of the slices how you think that's going to evolve over the next few years, given you have a lot of projects in the pipeline that are not yet sort of in the activity summary, how you think that will evolve both in terms of total size, in terms of cost, and how that structure might move in a quarter and then the share between each of the slices?

Yeah. I mean, I can only answer you know in big-picture terms, because as you know, we only put this - we don’t put our development type like you know, like the European companies do. But if we did - if we did though, the general number would be over $5 billion of readily available projects. And I would say to you, Michael, the shift will be more towards the mall - the U.S. mall and densification effort. And so you know right now if you put those two together, it's roughly 50%. I would think that that would tend to you know when we put on that King of Prussia and the Brea as we turn that in, but in that development pipe that reaches $5 billion. You'd see more of a shift there. As an example, we don't have Phipps Plaza in yet, even though we know it's a goal project, we're finalizing all of our numbers. We'll take that to our development community here in the next, I think in the next month or so. So I think you'll see that shift in that take a bigger chunk of that. You know, international is episodic. We've got - we're looking in other areas in Southeast Asia. We're also looking in the Middle East with our Premium Outlet business. So - and I do think we'll find - continue to find a U.S. Premium Outlet new development, and I think you'll see the redevelopment of that portfolio begin to pick up. Given the big nature of these projects, the densification of the mall, you know, I see that - I would see that tend to increase generically.

And then when you guys did the Aero deal, I remember you talked on the conference call about vertical integration, and that was the time of I think the Time Warner deal had been announced at that point, and then you made a big deal about how vertical...

I didn't make a big deal. Okay, let's be clear, let's be clear on that.

What I was saying was, you made a big deal about how, you know, other companies are given a lot of rope for vertical integration and much larger things versus a $25 million, $30 million investment on a $100 billion company that wanted some latitude to do those sorts of things, and a couple of years later that investment, as you mentioned, clearly has done well and you've been able to rotate your stake in a real larger brand-oriented company. So going forward, how do you think about furthering those sorts of investments where you are taking some level of additional vertical integration in terms of types of experiential type real estate or other types of brands or other retailers or other things that you would be able to see to bring to your assets? Does that change the calculus at all in your head?

Well, you know, we feel comfortable that we - you know we're not – you know maybe we can replicate what we did in Aero. But I mean my goodness, we had essentially no investment in Aero, and the business is - I mean we actually have a real big gain, obviously because we see the GAAP financial statements. But you know, that's a business that we have effectively from a book value, no gain or no investment, negative investment that we've gotten the gains through the P&L, and we still own, you know, just under 6% ABG, which is worth a lot more than you know a lot more investment. We have the operating business which will throw off, you know, I don't know. We own a little under 50%, which will throw off in the $30 million to $35 million range EBITDA, pretax, blah, blah, blah. So, and as you know we got criticized on that deal, and a lot of the people were concerned we bought it because that's the only way we could keep the rent payer and all these other stuff. So hopefully we’ve put some of that aside. We just thought there was - you know this was a brand that was doing $1.2 billion of sales. And it made sense to be able to save the brand. So I feel comfortable we're going to continue to find those investments. We're looking at a number of them in the retail restaurant area. We're also looking at a number of them in the venture capital area. And then I wouldn't rule out you know those won't be big investments, but then I wouldn't rule out, you know at some point a bigger investment that really aligns with what we're doing, which is we collect – we’re in a brand-building business, the consumer-facing business. And obviously we've got all these physical properties. So I wouldn't rule it out, but you know, nothing's in the works right now. But we'll continue to make hopefully smart tactical investments in good businesses, in good brands, good retailers, and good restaurants. And we're working on a number of them. But those won't be sizable in terms of what you've seen historically. And I will add, you know that given Aero’s success, I mean ABG and Aero brought the Nautica business just recently, and you know, creating a similar OpCo IPCo structure and we think that's another good brand to be part of that family.

Great. Thank you.

Sure.

Thanks. Good morning.

Good morning.

Hey, David, just looking at your page 27, the development activity, I realize that some of the numbers kind of bounce around quarter-to-quarter. Your overall development returns were pretty flat and unchanged from last quarter. The mall redevelopment did tick down a couple of hundred basis points. And I'm just wondering if there's anything specific that relates to mix or maybe there's more residential coming in that has lower returns. Anything we should kind of know about that?

Not really. You know, I would say generally in all of our - all of these kind of metrics, whether they're you know sales, lease spreads, occupancy, development returns. You know we are always going to have quarter-to-quarter ups, downs, flatness, et cetera. So generally, it's just new stuff coming out. It’s open coming out, new stuff coming in and I wouldn’t say you know, Steve there’s any trend there other than mix changes all the time.

And maybe just a follow-up, just anything on the construction cost side, just given all the things that we're hearing about, whether it's steel, aluminum, other import prices. I mean, how do you sort of think about that if you're looking at new projects and underwriting them?

Well, that's a very good question. I do - we are planning for cost increases. So you know, we're going to - obviously we're covered in the stuff that's under construction, because we generally do a guaranteed max price contract. But the new stuff's all going to be vetted with what we think is higher construction cost. And again, those returns are going to have to be generated that will be accretive to us, otherwise we won't do it. But I do think that that's a fair statement. Costs are rising. And you know, I wouldn't call it material yet or deal-breaking by any stretch of the imagination. But we are confronted with our construction cost.

Okay. And then maybe just going back to some of the e-tailer comments that you made, I know - I believe it was Roosevelt Field. You sort of created almost like an incubator or space concept for the e-tailers and would rotate folks through. I'm just curious how that sort of experiment's gone and sort of what your thought is about rolling that out across the portfolio?

Good question. I think you know, we are still experimenting with the edit. It is doing well. We're cycling retailers in and out, not necessarily e-tailers. It could be someone wanting to build their brand, take advantage of the traffic in the mall, et cetera. We do – you know, I'd say it's a little early yet to commit to this, but we do think that that's a business that you know once we fine-tune it, we could roll it out a little bit more. I know, a number of our peers are also experimenting with similar concepts. So I do think there's a business there. We've been pleased with it. You know it's - we have growing pains like anything else. We cycled brands in and out of it, but I think we feel - we feel there's an opportunity there, hard to quantify and hard to tell you how many. But there's clearly - I mean, there's no difference here than anything. I mean, people – I shouldn't say people, brands and retailers want access to our traffic that's going through our buildings. It's up to us as the owners of it to make it in a way that presents their business so that the consumer can experience it. And I think this is one of many ways that we can do it. Rick, I don't know if you want to add anything.

The only thing I would also say is we've already had one of the tenants in there that is opening up some incremental locations with us throughout the portfolio because they were pleased with the experience they had there. So it does work as an incubator, and we're seeing positive results out of it.

Okay. And maybe just last question, Dave you touched on sales up a little over 4.5%. I don't know if you or Rick just kind of maybe provide any commentary around categories or just things that did really well in the second quarter, maybe some of the areas that are lagging?

The stronger categories were home improvement, sporting goods, entertainment, home entertainment, and family apparel. Weaker were women's, moderate in special sizes and home furniture.

Okay, Guys. Thanks.

Thank you.

Great, thanks. Maybe you could get an update on Simon's new tech initiatives to better connect its consumers with its centers?

Well, that's a long-winded answer on an earnings call. I’d just say Greg, there is a lot going on in how we're approaching that. We have a number of ideas how to do it better. So we're doing both an incremental approach, you know, to increase that connection. But I also think there are broader and bigger ideas that we have that we’re considering. So you know, I would say if you look at some of the generic things that are out there, you know, our visits to store, our app store and our website are significant, our gift card sales are significant increases year-over-year, so we're making our connection through all the various social media that are increasing and growing. So there's a lot going on that we're doing. Our showcase of deals is getting more throughput, more retailers are joining. So there's so much going on incrementally that’s showing very positive signs. But you know, we're also in the phase of developing bigger and better ideas to scale with even – even at a greater extent.

The one thing I would add is we also have that. We’ve moved online our coupon book and our VIP Club at Premium Outlets and that's generating literally millions of members that are substantially enhancing our ability to track our customers and establish relationships with them. So that's been also very positive in that area.

Okay. And would you say your marketing budgets at your new individual centers are moving away from traditional media and towards some of these newer emerging ways to connect?

Without question, yeah, a big shift in - you know, now listen we all - we shouldn't say all, I struggle all the time on return on investment and marketing dollars, some others might. But clearly the shift is toward social media away from traditional print and television. We still believe television can provide a lot of reach. But you know, I think we're no different than a lot of other major companies that are moving toward more social media to the extent that those platforms deliver what they say they're going to deliver. And you know, obviously we won't get into that whole issue.

And just lastly, are you seeing the strength in your properties, on luxury retailers, we seem to be hearing from other sources?

Yes. We had very good results with our luxury category without question.

Thanks.

Sure.

Hey, David. Good morning. I wanted just to follow up on the expense side, you've noted previously that you've done a good job of tightening the so-called belt on expenses, and it looks like you did another good job with that this quarter. So wondering, how much further you think you might have in terms of reducing those expenses just as we look forward over the next couple of quarters and maybe the next year? I am not looking for you to give guidance, but just in terms of your ability to continue to tighten up there? That would be helpful.

I would say to you we're in pretty good shape. I don't expect anything dramatic now. The one thing I would point out to you and Tom, I don't know what page it is, our other expenses went down. This was not included in our funds from operation. But part of our other expense, what page is that, Tom?

Page 21.

Page 21 went down because of the increase in the stock price of WPG quarter-over-quarter. We elected not to put that in funds from operation, otherwise, we would have generated $0.03 more, and you can see that's basically a reduction of other expense, that's in footnote 3 there. So you may - I don't know if you saw that or not, Rich, but I just want to point that out. But I would say the broader question is, we're probably in pretty good shape on the expenses. We're always focused on it, but I wouldn't expect anything dramatic there.

Got it. And just maybe one other question if I can. Going back to the other income, I understand the reclassification from Aero, I'm sorry for maybe being dense here. But I was a little bit confused by the offset by lease settlement income. Can you clarify that? I assume you mean that lease settlement income maybe wasn't as high this quarter versus last quarter given Teavana?

Yeah. I mean, basically, I don't remember went to Teavana was in. But last Q over Q, I think we had a reduction of roughly $10 million plus in lease settlement income and the net increase in other income is around 25. I wouldn't call it a reclass, it's actually not a reclass. We exchanged our interest in the Aero IPCO, which we own around 30% or shares in Authentic Brands Group on a value based upon where they recently - new investors came into the company. We thought that was a good transaction for us because it not only diversifies the risk, but we’re then writing the growth of the ABG above and beyond what happens with Aero. So wasn't a reclass, it was actually a transaction. But basically those are the two differences I hope I answered your question.

You did. Thank you very much.

Sure.

Hey, guys. Good morning. Just given some of the shifts we're seeing in the retail landscape today, e-commerce continuing to grow. I was hoping you could talk about the importance of scale today. We saw when your mall peers combine earlier this year, you guys obviously moved away from a portion of your lower gross assets a few years ago with the WPG spend. But obviously, you’ve continued to build - in your opening remarks, you mentioned expanding geographically, expanding your reach. So just wondering if you could talk about the advantages of getting bigger in today's environment?

Well, listen I think, you know, more or less as we've seen in corporate America, I think scale is really important. You know, and it goes beyond real estate. You know, look at BlackRock, where do they run $6 trillion, you know that scale is important. Look at that Blackstone, in terms of their private equity and real estate business. Look at obviously - you know look at what's going on with the tech companies you know, from you know, all the things that they all have scale and believe me they use that to their advantage in a lot of ways. So I think scale is important. The offset on scale is that our business is you know, when you get to the fundamentals of the real estate, it's still a very local business. So you've got to be able to do both in our business, whereas you know some of these other companies don't have to worry necessarily about you the location main and main, where we do. So that scale is important learned experiences are important. And I think we've been able to do a lot of what we've been able to do because you know we've grown our business. On the other hand, you know, you can blow it; it all takes is one big scale deal. And if you don't understand it appropriately or you stretch the balance sheet too much and you can't weather a down cycle, I mean, you can - it can go for naught. So you try to find that fine balance; it's very difficult in a lot of respects. And I would just finally say that we feel the good thing about what we feel about is that we don't feel and I've been saying this for a little time, but we don't feel like we have to just do a deal just to do a deal; we'll find where we can add value and make some money on it.

I appreciate that color. And then just one last one for me, just in terms of densifying assets or adding these other non-retailer users, you’ve talked about enhancing the experience in terms of the live work play and shop, and you guys have obviously increased your focus on adding these other uses. I mean it's partially resulted in simply getting more access, do you think, or boxes; your peers have done the same. I'm just wondering, just part of your larger development, redevelopment group or do you have a dedicated team looking specifically at these opportunities, and if you do, do you continue to hire of that as you add more projects or do you feel like the team is largely built out at this point to handle what seems like a growing pipeline of opportunities?

Yeah, no. All right on spot. So here's the way we do it generally, we have a development group that will get the permit. So, you know, what I call the traditional mall development group, but the actual underwriting, development, construction, etc. is actually housed within its own separate group. And we are adding resources to that group to do our hotel and our multifamily opportunities that, you know, in some cases we'll do on our own as you know, some cases we do with JVs. So our roles and responsibilities change on by deal, but we're you know the permitting process is basically that same process that we've embarked upon for year after year after year. But we are adding resources to the execution and the identification and importantly the underwriting of that group and I think we'll continue to add dedicated - we actually just hired someone that will do you know - continue to do hotel and residential stuff. So without question we’ll be beefing up some internal resources.

Thanks for the time.

Sure.

Hey, good morning.

Good morning.

So David, my Mizuho counterpart in Asia recently hosted some property tours on the ground there and noted incredible growth. So I guess I'm curious why you aren’t there in a bigger presence, is your new outlet in Thailand perhaps a sign of more to come or you looking at looking at more in Asia these days, and could we perhaps see Simon making an incremental shift to do more in Asia given the opportunity relative to the US?

Well, you know, we’ve basically decided we don't want to do full price in Asia. You know, absent some unbelievable dislocation in the market and you know, almost clay peer-like in full prices, you know troubled and you know, the world's ending and you know, you go in and you buy it at a discount to the value. So what we've found is that our Premium Outlet brand has a terrific identity there and the ability to do that is basically new development, right. So new development takes time and part of that is finding the - you know we don't want to do that ourselves, so we have to find the right partner, and then we have to find the right sites, and then we have to develop it and then we have to lease it. It just takes time. So I'm pleased to note that our partnership in Japan is doing well, same thing in Korea, same thing in Malaysia, and now in Thailand we have a great partner, and I think we're starting off here, it's going to take a couple of years to build. We have a great partner in Mexico and great partners in Canada. So definitely we’ll grow that business. But that’s why it takes the time it takes, and yes we are looking at other markets in Southeast Asia, but it just takes longer - unless you’re going to go buy something - development takes time.

What about China, specifically?

It's a very interesting question, and that we think about the outlet business in China all the time. We've looked at opportunities all the time. We have not found the right one. But we have certainly by no stretch of the imagination ruled out the outlet business in China. I mean, that could be a possibility for the company under the right circumstances.

Okay. Thank you for that. Curious on your thoughts on stock buybacks here, it looks like you're buying back during the quarter with the stock down in the $150s, stocks moved a bit here, curious on what your appetite at these levels would be?

I think it's still to be opportunistic. You know, we'll continue to buy stock back, you know, we try to be thoughtful when we do it and take advantage of the market when it's volatile.

Okay. Last one, on lease up progress at your recent redevelopment and development projects, Denver, Boca, I'm curious, are you getting the merchandise, the rates, and the lease term you're seeking? And as part of that how does the average length of terms for your new deals, not renewals, but new deals compared to say 5 or 10 years ago? Thank you.

In terms of Denver and in the expansion in Toronto, you're going to find those opening substantially leased over 90% with great collections of tenants, including luxury and really across the board. So we've been very pleased with how that has been done. In our new deals, the terms are very consistent with what they have been historically.

Okay. Thank you.

Sure.

Hi. Retail REITs I know lease settlement income is not in SS NOI. But we can also assume that the Aero gain was also excluded from SS NOI, right?

Yes. It's included in our FFO. I couldn't quite catch what you said, so could you please repeat it?

I just want to know is Aero in your SS NOI?

Oh no, I'm sorry. I thought I was hearing FFO. No it's not in our same store NOI, absolutely not.

Okay.

As you know - as you pointed out, nor is lease settlement income.

Okay. And then when you think about how retailers are building brands these days, you know, what's critical or what are some of the trends? Like I've read for example that stores feel like they need to be Instagrammable, and millennials like and prefer subscription services? But what do you think has changed from a real estate point of view for landlords? And you know, what are you doing to facilitate these new requirements?

Well, I think you know, they basically want great – nothing’s changed in that sense. I mean, they want really good real estate with traffic and the right brands around them. So you know, it's interesting and I won't - I don't want to steal Rick's thunder in this. But you know, I would say we have at least 50, 60 retailers. We actually break them by category in these categories. You know, they're e-commerce, pure e-commerce growing, and then they want stores or they want access to our consumers. We have the growth e-commerce, in other words, they've already done that, and they are growing. We have the international expanders - people that are from international that are expanding. Then we have the new international tenants, and they are starting to grow. We have start-up or new to portfolio with national aspirations and growth categories which are a start-up or new to portfolio, again with national aspirations. When you put them together in these categories in having 50 names, but what they all want is consumers you know, the right cotenancy, so to speak, if I can't come up with a better word, and they want to be in. And I also want – I think the - who the owner of their real estate is important to them to some degree. I mean, when you put it all together, and you know, that's - I think that's what they want. I hope I answered your question.

Thanks. That was helpful. Just one last question on – a clarification on Washington Prime. Why has their fair value changed? Because I didn't out guys still held shares?

We had units that we had since the spinoff under 3%. We've had that from the get-go. And the only reason why that volatility is in and out is because of the new accounting standards. So that started at the beginning of this year. And so each quarter we have the mark-to-market in any public securities or readily marketable securities that we have. We have chosen not to include that in FFO and again, as we said you can see that on page 21, you can see the financial impacts; it does go through our GAAP statements.

And what were the fair market value adjustments, the result of?

It's because the stock went up.

Okay.

It's better than it going down. Actually, the quarter before it went down. So we had a loss; we had an increase in our other expense Q1. And again, we didn't – that didn’t run through FFO at that quarter either.

Thanks.

Thanks, hi. David, you said that redevelopment of the Premium Outlet portfolio may be picking up. Curious what's driving that? Are you just adding more GLA to meet demand or are you going to be doing something different to those centers?

Well, I think in some cases absolutely we have gone back to kind of the - you know take Wrentham as an example. We have a food court that you know we’re not sold on, that's the best use. And what do we do with that box to it up and then make it more customer friendly. And I just think it's been a matter of - you know, we've been so busy in developing new centers that you know that was the focus and as that’s changed to some degree, we’re just going back to the portfolio and mining the opportunities much like we did with the mall business. Now I will say, we've got a couple of major new developments in the outlet business that we've been working on. So stay tuned on those, but you know, those will be exciting developments if in fact they do come to fruition. So we'll still do selective new development in the U.S., but I just think it's a matter of rededicating the resources to going back through the existing portfolio to make sure that you know, they're doing all that they can to continue to be attractive places for the consumer.

The other thing we're doing, as David just indicated, if you did any Clarksburg or when you see Denver, you're going to see a much higher level of amenities for our customers, fireplaces, outdoor seating areas, upgraded play. And as we go back and look at these properties, we're implementing those incremental amenities throughout our portfolio with very good results.

It sounds good. Thank you.

Sure.

Thanks. Good morning. This is Keyvan.

Morning.

Good morning. So David, I just wanted to go back to your comment about leasing improving, if you can just talk a little bit more about what's behind that and how much of the improvement in leasing volume or whatever you're referring to is tied to Simon improving the merchandise mix at the malls through redevelopment or just changing retailers or how much of it is it the older guard of retailers just doing better on improved strategy or merchandising? And lastly, how much of it is just a better economy? I mean, retail is supposed to do well and a 4% unemployment economy, right?

Well, listen, I think all of the above is the simple; I can't break it down by percentage. But you know, but the reality is our portfolio, our common area or small shop is so big that there's not – there is just no way that one thing can move in one direction or another. It's just mathematically impossible. So, you know, listen the growth in the economy is terrific. We're very pleased to have seen it. And obviously is the consumer is spending more. That's terrific. We haven't seen that for a number of years. A number of our retailers are getting better and healthier. And I think the tax cut on their business gave them more earnings to invest or replenish their merchandise. We're working through a number of the bankruptcies and replacing them with better retailers. We're upgrading our mix, so you put it all together, and I think that's what's generated at least the increase in sales. But you know, it's just mathematically impossible for one thing to move it one way or another. I wish I had maybe I should, I wish I knew exactly how to calibrate which of the three or four categories you mentioned, which is driving it, but I think it's all in that number; it's all or part of it. I mean, I don’t – I think the retailers to some extent were playing defense and now they're playing a little more offense. But you know it's impossible for me to tell you what you know, what by category, but I'd say it's all of the above.

Okay. And just last on CapEx. I know that number can move around a little bit quarter-to-quarter. The CapEx offered per square foot did that change at all the trend-wise over the past couple of quarters?

Not really. I mean, and I do think you mentioned a good point. I mean, there is quarter-to-quarter variance. If you look at it, you should look at it that 12-month or on an annual basis, and you'll see it is not a lot - there's not a lot of difference.

Okay. Thank you.

Sure.

Hi, good morning.

Morning.

I have two shorter ones, just on the densification projects, you guys now indicate with an asterisk which project Simon has an ownership interest in, so I just was wondering for those that do not have an asterisk, does somebody else own them? Did you contribute the land? Or kind of what's going on at those other properties?

Well, in some cases, we contributed the land or sold the land. But in a lot of cases it's just - it's further validation of the location that we have that there's a lot more going on in that parcel than you know - than what we're doing. So, I think it goes under the category of helpful information maybe I guess, I don't – and I don't get overly excited. I care about what we do, but it's always good to have better neighbors.

Got it. So just looking at one that doesn't have one, like Coconut Point in Estero, that opened last year with a hotel, that just means that it's something that somebody else was doing. But it should help our sensor, is that the right category?

Correct. That’s correct.

We sold them the land as part of our master plan development. We had a parcel that we designated for hotel development. It was across the road from our existing project, so it wasn't integrated, and it was just a sale, but it certainly enhances our overall environment.

Got it. Okay. And then the other was just, I know it's a small portion, wondering if you could give any update on Puerto Rico properties that you have. If they're - to what extent they're back to where they were a year ago or if they still have more catch up to do?

They have - they continue to have a significant amount of catch-up to do. And I'd say the outlet, the Premium Outlet is in much better shape, the mall because you know, it's easier and faster to build an outlet store than it is a mall. The mall is taking a little bit more time to get back up on its feet. We're hopeful by the end of this year, it will continue. But you know, there's a lot of work to be done and more in the mall than in the outlet at this point.

Okay. Thanks.

Sure.

Good morning, guys. I am just curious, David, occupancy costs, say, ticked below about 1.3% for the first time, I think since about 2016. Now that tenant sales are moving more strongly forward. I know I'm asking you to predict retail sales, but I'm just curious, you know, longer term how do you think about occupancy costs, do you expect them to return to sort of the 11% to 12% range what you saw years ago that seemed to be where you stabilized or do you think you can hold the 13% peak that we've been operating at?

Well, you know, that's a real tough one. I mean, I - there's so much that goes into that beyond you know - it's space by space, it's supply and demand. It's the model that you know, the high-end retailers have much more margin on their product, and so they can pay a higher occupancy cost. I mean, I don't think there's any real generic statement that I can give to you, other than I think we're you know pretty good at trying to price our real estate. But you know, we have to price in a way that the retailer is profitable. So I wish it were more science than art because then it would solve a lot of problems and be even more efficient than we already are. I can just do an algorithm and say here's the price of the real estate. But the reality is it's not quite that simple. And you know, I just – I can't predict where that will go though. I'm not alarmed that you know suddenly we're going to - it's going to have to go lower and lower. I just don't - I just - you know I'm not alarmed; I'm not worried about it.

Analysts just some of our peers have been increasing with the penetration of, you know, their exposure to restaurants and entertainment as they sort of merchandise the mall. How do you guys balance the relevancy of your merchandising, in this case the restaurants versus the higher costs of those deals and maybe the higher turnover risk of restaurants, just so you're not effectively jumping from one risk to another? Because there are a lot of studies out there that say maybe saying we're getting a little over restaurant, I'm just curious about your thoughts.

Well, I think the most important thing is making sure you have the right brand. And you know, like others we've got a dedicated team that focuses on those opportunities, both entertainment and in the restaurants. And it's really a function of making sure you have the ability to know how they're going to do, we have - how many restaurants we have, Rick?

We have literally 1,750 food users in our mall portfolio.

So I mean, that gives us a lot of experiences on what’s going to work and what’s not. And believe me, you know Jeff, we take risks there. We experiment and sometimes we crap out. But you know, that’s part of the job. I mean, we've got to - sometimes we've got to invest in the new restaurateur to see if this is something that will add value to that center and then maybe go beyond that center. Now when we do that we're very good at making sure it's lean free. We're very sure we'll get the improvements that kitchen won't be ripped out, so you know that operator happens not to be the right operator, we don’t start out. That to me is the key on any of these new concepts, as you've got to make sure that if you do take a little more risk than you do then you want to at the end of the day you've got a restaurant or a facility that’s easier to lease and you don't have to reinvest again; you know, you reduce costs. So you're investing a space that you can monetize over a longer period of time.

Maybe just one last one, on leasing spreads just a housekeeping aspect. Do you have NOI weighted leasing spreads for Q1 and Q2 this year?

We do not, Tom we don’t tend to give it out, but Tom will give it out to you maybe if he is in a good mood.

Okay.

I determine whether he is in a good mood or not.

Just kidding. I am just kidding.

Well, maybe I am not. All right. Where we can, I know we done that. I don't know why, but we like, okay. Thank you.

All right. Thank you very much and have a good day.