Welcome to the Q3 2021 Simon Property Group, Inc. earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Tom Ward, Senior Vice President, Investor Relations. Thank you. You may begin.
Thank you, Alex, and thank you for joining us this evening. Presenting on today's call is David Simon, Chairman, Chief Executive Officer, and President. Also on the call are Brian McDade, Chief Financial Officer, and Adam Reuille, Chief Accounting Officer. 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. Our conference call this evening will be limited to one hour. For those who would like to participate in the question-and-answer session, we ask that you please respect the request to limit yourself to one question. Please introduce David Simon.
Our cash flow increased to nearly $3 billion year to date, consistent with pre-pandemic levels. We recorded increased leasing volumes, occupancy gains, shopper traffic, and retail sales. Demand for our space from a broad spectrum of tenants is strong and growing, and our various platform investments continue to outperform. Third quarter highlights from funds from operations starts with $1.18 billion or $3.13 per share. Included in the third quarter results were a non-cash after-tax gain of $0.30 per share from the contribution of our interest in the Forever 21 and Brooks Brothers licensing ventures for additional equity ownership in Authentic Brands Group.
We now own approximately 11% of ABG and a loss on extinguishment of debt of $0.08 per share from the redemption of the $1.65 billion of senior notes. Our domestic operations had another excellent quarter. Our international operations have improved. However, the quarter was below our budget by roughly $0.03 per share, primarily due to various COVID restrictions. Domestic property NOI increased 24.5% year-over-year for the quarter and 8.8% year-to-date. These growth rates do not include any contribution from the TRG portfolio or lease settlement income. If you did include TRG and international properties, our portfolio NOI increased 34.3% for the quarter and 18.7% year-to-date.
Occupancy was 92.8%, which was an increase of 100 basis points compared to the second quarter. Average base rent was $53.91. However, that excludes percentage rent, and if you included that would add actually another $7 to BMR. For the first nine months, we signed 3,500 leases for 12.8 million sq ft, which was nearly 3 million sq ft or approximately 800 more deals compared to the first nine months of 2019. Mall sales for the third quarter were up 11% compared to third quarter 2019, up 43% year-over-year. Our sales are over 2019 peak levels.
These results are impressive, in particular, given the lack of international tourism, which we believe will start to increase after the strict restrictions on international travel are lifted beginning next week. Our company's focus, as you know, is cash flow growth, which will allow us to fund our growth opportunities and increase our dividend. We would encourage the analyst community to focus on our cash flow and its growth because there are many levers that contribute to it beyond what is contained in one or two operating metrics. A simple case in point, our mathematical open and close spread has declined, yet our cash flow has significantly increased. Leasing spreads are calculated at a point in time. We have studied the leasing spread metric across the various retail real estate companies and highlight the following. Spreads are significantly impacted by tenant mix.
Our leasing spreads include all openings and closings and is not a same space measure. However, we believe many other companies use only this subset for their calculation. We do not include variable lease income in our spread calculation, others do, and there's no consistency in approach. We intend to spend the next several months working to achieve uniformity on this metric, much like we did for sales reporting, although the shopping center sector still does not disclose any sales productivity for its retailers. Let's keep in mind that all of these metrics, we need to put in perspective, and we encourage you to take this opportunity to refocus on the importance of cash flow. We opened our fifth premium outlet in Korea, and our tenth in Japan is under construction. Our redevelopment activity is accelerating.
Northgate Station opened at Seattle Kraken Community Iceplex. We have many developments ongoing at Phipps, King of Prussia, Southdale, and many others. Our share of net cost of development projects is now approaching $1 billion. Our retail investment platform are performing well, very well, including SPARC, JCPenney, and ABG. SPARC outperformed their budgets on sales, gross margins, and EBITDA. We're very pleased with the J.C. Penney results. The Penney's team has stabilized the business, improved financial results, and we've added private and exclusive national brands to it. Our liquidity position is at $1.5 billion, and there's no outstanding balance on their line of credit. We're very excited to announce, and in fact, his first day is today, Marc Rosen. He's joined the company as the CEO.
He's got a terrific background, great leader, and we look very forward to working with him as he builds on the momentum Penney has established this year. Penney's success is an excellent example of how to better understand our company. We appointed Stanley Shashoua as the interim CEO nearly a year ago, and look at the results. Much like the variety of our investments, no other company in our industry has the capability to put an executive in an interim role and produce these results. This is a testament not only to Stanley, but to the Simon culture. TRG is operating above our underwriting, posted also impressive results for cash flow growth, occupancy gains, and retail sales, which were 16% higher. As you know, we amended and extended our $3.5 billion revolving credit facility.
We refinanced a number of mortgages, and our liquidity stands at $8 billion, including $6.9 billion available in our credit facility, the rest in our share of cash. We paid a dividend of $1.50 in September. That was a 7.1% increase sequentially and 15.4% year-over-year. Today, we announced our fourth quarter dividend of $1.65 per share in cash, which is an increase of 10% sequentially, and 27% year-over-year. Dividend will be paid December 31. Now we raised our guidance from $10.70-$10.80 last quarter to $11.55-$11.65 per share. This is 85% increase on the midpoint.
That's 27%-28% growth compared to 2020 results and basically $2 higher than our initial budget this year. Let me just conclude by saying the following. Even though our stock has posted impressive year-to-date returns, we strongly believe it is still undervalued. Our current multiple of 13x is approximately three turns lower than our historical average and screens very cheap compared to the REIT sector at 24x, and in many cases, even close to 30. We have unequivocally proven with our results year to date that we've overcome the arbitrary shutdown of our business due to the pandemic, and our cash flow has bounced back dramatically, which many had doubted. We have growth levers beyond our real estate assets that are unique attributes of our company. We have proven to be astute investors.
We have unique business models and diversity of income streams. Our balance sheet is industry-leading and as strong as it's ever been. Our dividend yield is 4.7% and growing, well covered, higher than the S&P yield of 1.9% and the REIT average of 2.9%. We have the potential to perform very well in an inflationary cycle. We're now ready for questions.
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our first question comes from the line of Richard Hill with Morgan Stanley. Please proceed with your question.
Hey, good morning or good afternoon, guys. Sorry, it's been a long day. Congrats on another really good quarter, David. I did wanna maybe just understand a little bit more about the sequential slowdown and maybe in TRG's domestic portfolio, in the international portfolio. Is there anything specifically that would drive that? I'm really only asking the question in terms of how we should think about forward modeling, because I do recognize that you're
Oh.
guided.
No, no, you're wrong. It's we're just showing our share, so, compared to the gross number last quarter.
Yeah.
So-
Oh, okay.
Okay. No, it's a good question, but it's just our share.
Okay. Thank you very much for that clarification.
Yeah. No, no. I'm glad you pointed that out. Thank you.
Got it. I did wanna maybe just understand a little bit more about the income from unconsolidated entities. Just to be clear, like last quarter, the non-cash gain was included in that number. Is that right?
Yes. Yeah.
Okay. Maybe we can just talk about why that number went down a little bit. I do recognize depreciation went up pretty significantly versus the prior quarter. You know, obviously, seasonality would dictate that the retailers were doing pretty well. Is there anything that we should think about in that number as we look going forward?
No. It's, you know, it probably most impacted by our European and international business, as I mentioned earlier.
Great. Thanks. That's it for me. Thanks again, and
Thank you.
Congrats on another good quarter.
Thank you.
Our next question comes from the line of Craig Mailman with Bank of America. Please proceed with your question.
Great. Thank you. I noticed going from second to third quarter, you increased your total redevelopment about $83 million, the total investment. That does not include Taubman. Have you started to make any of your investments in terms of Taubman redevelopments?
Yeah. I mean, it's progressing the way we thought it would. You know, there's a big master planning in the works on, you know, Cherry Creek, but that's, that'll be, you know, several years in the making. No, there's some good stuff happening in that portfolio as well.
Great. How should we think about your retail investments in terms of, I mean, quarter to quarter, it kinda moves around. I mean, should we look at it on an annual basis, or how should we get a better handle on what you've been able to produce out of your investment in retail?
Well, I think you should, you know, think about us as a company that can adds value to what we invest in. You know, you should never worry about quarter-over-quarter or, you know, you should look at annual results and compare them historically. I, you know, just say that's generally. I think the most important thing is, Craig, we're just a different company than what most think of us. I mean, we have lots of avenues for growth in our investments in retailers and other companies, you know, has proven to be extremely successful.
It will create you know some variability to quarter-over-quarter, but year after year, I think when you look at our return on investment, return on our EBITDA for those businesses, it's actually quite outstanding. If you look at the valuations that you know e-commerce companies are getting for their dot-com businesses, you know we've got an embedded value here that's pretty exciting. I would never worry about one quarter over another.
No, yeah, particularly thinking about the 11% interest in ABG and what people say that might go for on an IPO. It's very impressive. Thank you.
Yeah. Well, I mean, yeah. Look, we're just not your you know, we're more than just a you know, even though you call us a mall company. I think we've proven to be beyond that. That's what I'd encourage you to focus on.
Okay. Thank you.
Thank you.
Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.
Thanks. Good afternoon, David. It was nice to see the occupancy up, you know, 100 basis points sequentially. I'm just wondering if you could discuss a little bit about your leasing pipeline and backlog, maybe where you think occupancy ends at the end of this year and, you know, what your expectations are for a recovery in occupancy.
Well, you know, I think it's gonna take a little bit of time to get back to where we were pre-pandemic, but I think what's exciting, Steve, is that when we're talking to our folks, they're you know, just seeing a tremendous amount of demand. Never been busier, lots of new retailers, lots of new uses. You know, I think the action is in our portfolio. We'll have another increase this quarter upcoming, and then we'll increase our occupancy next year. I can't, you know, as you know, we never give specific guidance on that. The demand, I strongly would tell you that it's very good. It's across the board. I mean, it's the high-end retailers. It's the value-oriented retailers. We're very pleased with what we're seeing.
Great. Thanks.
Thank you.
Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, good evening, and nice quarter. I guess maybe just another question on the retailer part of the business. I was wondering if you could go through from a REIT perspective, is there a max how big this business, how big this can be as a part of your business? And just what's the current goal or ultimate plan for your own brands? Is it just to grow the existing brands, acquire more, sell it? Just any thoughts on the plans going forward.
Well, listen, we're obviously, you know, very dedicated to being a REIT and staying a REIT, and all of these businesses are in taxable REIT subsidiaries. You see that, you know, in this quarter in particular, you'll see the, you know, the big tax expense that is flowing through our P&L. Because we tend to buy these in partnerships, we have really, you know, a runway to continue to grow that business. Not to mention that we still have our SPAC out there that, you know, is a, in a sense, a vehicle for growth.
I'm optimistic that you know, based on our track record, we're gonna continue to find other investments, whether it's retailer or similar situated businesses that will continue to you know, add to our unique company. We'll take it from there.
Got it. Okay. Then maybe just a quick follow-up. I think we'll learn more once the 10-Q is out. Until then, just on that tax number in the quarter, could you clarify if that was just related to the retailer income in the taxable REIT subsidiaries, or if there was anything one-time included?
Hey, Caitlin. No. Oh, go ahead. Hey, Caitlin, it's Brian. There's actually a one-time $48 million number coming through there from the ABG transaction that we had in the quarter. You gotta bifurcate the two numbers. There's a 48, and then the rest is just our normal regular occurring operational tax accrual.
Okay. Thank you.
Thank you.
Our next question comes from the line of Michael Bilerman with Citi. Please proceed with your question.
Hi. Greg, Katie McConnell is on with me as well. David, good afternoon. I was wondering if you can maybe delve a little bit deeper into the retailer environment in the sense that we know sales are extraordinarily strong as everyone's gotten back out and enjoyed buying things again. But the retailers are struggling sort of a little bit below the sales line, right? They're struggling with staffing. They're struggling with keeping product up to date, most of it, you know, bunched on ships. So how are you sort of thinking about it from two sides? One, the retailers that you own and sort of dealing with some of these issues, where they're also dealing with their e-com problems too.
Also from the standpoint of how you think retailers are gonna approach sort of the store openings next year, given maybe some of the product, given some of the staffing concerns, and how all that sort of melds together now that you're more and more sitting on both sides of this equation and really understanding some of these pressure points.
Well, let me just tackle the, you know, the backlog in getting product to the stores, which does have an impact on us, you know, just with respect to our tenants and then as well as the brands that we own. There's variability. I mean, everyone is pretty comfortable or confident, I should say, confident that they're gonna get the product in there for the holiday season. But I would tell you that there's no guarantee, so there'll be some variability. You know, absent that, we probably would have felt, you know, a little bit better going into the fourth quarter, but we're cautious on it because we just, you know, we just don't know, and it's out of our hands, though.
I did throw a shout-out to Stanley only because, by the way, I trained him, but just don't forget that. He did tell me that he was going to. If he had to go to the Port of L.A. and unpack boxes to get them into the JCPenney store, he said he was gonna do it. And I said, "Well, that's a great idea. I'll do it too." You know, we're on call to help. That's that. I mean, there is variability. I don't know, but repeat, I think generally people are reasonably confident that they'll get this, they'll get their product in for Christmas. Now with respect to, you know, employment, this is well beyond retail.
Yeah.
I mean, it's a you know, with all the political back and forth going on, it's really not talked about. You know, just from a you know, from a CEO point of view and just as someone that's worried about you know, growing our overall economy, because obviously, you know, we're correlated to GDP growth. You know, we've got to figure out whatever is causing the lack of employment growth. We've gotta quote, "get to the root of it," because it's not clear to me that there's a big focus on it. Finally, getting to your last question, thankfully, Michael, I have not seen it impact you know, folks open to buy or their growth. Could it eventually? The answer is sure.
We have not seen it yet. You know, the lack of employment is an issue, especially, you know, and some of our retailers are, you know, they're doing one shift. They're increasing the salaries of the people there, less part-time. They're combating it maybe in a good long-term way because they're raising salaries and getting more loyalty out of that. You know, the increase in restaurant demand has been phenomenal, and that's the area I worry most about, is just, you know, ultimately, whether the employment picture could slow that demand. I don't know right now, it's a concern.
Right. When you throw all this stuff into the pot, you obviously have a lot more earnings and cash flow drivers at this time today than it's ever been in your history. Does your disclosure to be able to get credit and for the street to sort of value things to the point which you're talking about your stock being undervalued, isn't it necessary to, like, sort of break down some of these businesses or to give a little bit more information within the supplemental so that people can really identify each of these drivers from more operating businesses to the more rent business? 'Cause there's, like, little pieces, like you have FFO from investments on a trailing 12-month basis in the credit metric section. It would be really good to get that on a quarterly basis.
All those, like, I guess, are you stepping back? I know you talked about the lease spreads, but is there an opportunity to sort of revamp disclosure to give the investment community more of that level of detail, overall?
I mean, we're not gonna rule it out. It is our domestic property business, just to put it in perspective, Michael, is around 80% of our, you know, cash flow earnings. However, FFO, however you want to, you know, define it. Then we have the 20% other stuff. I just worry that if we do get into that, we'll spend more time on the 20%. Now, you know, 10 years from now, it may be different. Five years from now, it could be different. The 80% could be 50, and then I agree 100% with your, you know, your encouragement or point of view that it needs to be better articulated.
The other option is we could sell our dotcom business at a huge number and, like some of the others out there and then you'll ascribe a certain value to it. Believe me, we wouldn't rule that out, so.
Yeah, yeah. You were never in the market business to begin with. You and I have gone back on that about selling interest in malls, right? You never wanted to be in the market. You wanted the end cash flow and the value.
I mean, I'm a terrible seller, as I've admitted. In any event, I think, you know. Look, I'm excited about what we're doing. You know, I do think it's still more—it's a tail wagging the dog, but, you know, it's an important tail, and it's a beautiful tail. It wags nice, and it's very friendly. You know, as we grow that, I think what you say is certainly appropriate.
All right. Thanks. If we have time, I'll queue up for a quick guidance one later.
Okay.
Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey, good afternoon out there, David. I didn't realize that you and Stanley are both union longshoremen able to work on in the L.A. and Long Beach piers. That's pretty impressive.
Well, you know, we'll do whatever it takes to get product into our stores.
Well, I think if you know those union guys well.
By the way, you could join us, Alex. You could join us.
Hey, you know, if union work is pretty tough work unless you know can get to the crane operators. Those guys make good money. Question for you, and it sounds like, Tom, we get two questions, I love it. David, it sounds like in your opening comments you said that you were a little bit behind budget because of some of the COVID closures that you are still experiencing. Despite that, in backing out the ABG intellectual property gain, which is awesome, you guys still handily beat. I know, David, you like to run your crew really hard, and you know, whip and do all the fun stuff, shout, get your team excited to win.
Still, it's hard to say that you guys were under budget when you beat, you know, consensus this much. It sounds in your answers to Michael on store openings and labor and all different things, it doesn't sound like there are really any headwinds. It sounds like you guys are just really rebounding strong. What was the below budget related to as far as-
Yeah, Alex, that was just our international ops. If I didn't say the word international just 'cause I misread it on the script. I said it? Yeah, it's just international is the only business that I would say is under our initial budget for 2021.
Okay, just drilling into that international part, what are you seeing? Are you seeing anything like the rebound that we've seen in the U.S., whether it's Asia or Europe, or are the consumer rebound trends very different?
Yeah, that's a good question. It's by country in a sense. There's no simpler answer than I would say to you. It's very much how COVID is impacting that country. As you know, Europe was much more stringent generally, you know, in France and Italy, on how they open. As you know, our friends at Klépierre had to deal with, which, by the way, L.A. County almost did, but we'd have to enforce whether or not people had vaccine cards to let them in the mall, which thankfully, cooler heads prevailed. It really is country by country. We're seeing a little bit decent results in the European outlet business, and Klépierre is feeling more confident about what they are seeing.
I would tell you, Asia generally, no. Japan is pretty tough, but that's, you know, they've had a pretty strict shutdown. Korea is doing just fine. I'd say generally the U.S. is clearly outperforming, you know, other, you know, just from retail sales than other parts of the country, other parts of the world, I should say.
On your international folks, though, are they telling you like, yeah, by January first, the rest of Asia, Japan, Europe, France, you know, all the different countries in Europe, everyone should be back? Or is there just a continued concern that those countries are gonna continue to punt on on reopenings and ease of COVID mandates such that, you know, maybe 2022 is as greatly impacted on the international as this year is?
Well, I'm hopeful 2022 will be a better year for them, just like 2021 was for us. You know, but they'll be more proactive. When I say they, I mean, again, it's country by country, but in many spots they'll be more proactive if COVID spikes.
Okay.
In terms of restrictions, I should say.
Okay. Just a quick question for Brian. On the new line of credit where you switched over from LIBOR to SOFR, the net end of the day, the economic impact, you guys are basically paying the same cost. For this switchover, you guys are ending up paying a little bit more, maybe it's a little bit less, I don't know.
No, it's a push. It's an economic push. That was the whole design of SOFR, Alex. The intent was to be economically neutral.
Okay, thanks.
Thank you. Our next question comes from the line of Michael Mueller with JPMorgan. Please proceed with your question.
Yeah, hi. I was wondering, outside of the $0.22 of net 3Q one-time items, can you break down which drove the guidance increase for the balance of the year?
Can you repeat that, Michael?
Yeah. You had net $0.22 of one-time items that you called out, and guidance went up, I think $0.85. What drove the other $0.63 or so of the increase? If you could break that down, how much retailer versus domestic ops?
We don't break that down, but it was combination of both.
Got it. Okay, that was it. Thank you.
Thank you.
Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Hi. I was just hoping you could walk through maybe the quarterly volatility. I know you told Craig not to look at quarterly variances, and I apologize for this. Given the movements, it does seem like last quarter it was reported per share, this quarter it's per share, and the retail NOI dipped and the corporate NOI dipped as well, but the guidance went up. I'm just trying to put these pieces together and maybe get the components for those two NOI pieces, retail and corporate, and then tying that back to the guidance question that Mike just asked.
Well, Juan, you gotta remember here, looking at annual numbers here or even quarterly numbers, there were a variety of retailer businesses that we didn't own last year. So that's part of this noise when you're looking at it over, you know, year-over-year or quarter-over-quarter. That's a big piece of this. You know, J.C. Penney didn't close until year-end of last year, which is a big driver of this. So you got a different population, if you would.
Yeah, I'm just focused on sequential because the numbers did go down, for it seems those two buckets on a share basis, the retailer investments NOI and the corporate and other NOIs.
Sure. You have just seasonality and timing on the retailer side of it. Then corporate and other, the bigger changes that we recognized last quarter, a larger amount of termination income.
Okay. Then just more of a conceptual question on retailing. I mean, you guys own different pieces of the retailer landscape. You have like the licensing and intellectual property licensing and the traditional retailing. How do you think of the multiples that you would apply for those or the stickiness of the cash flows? I don't know if you could talk about typical margins. Just trying to get a sense of maybe where the EBITDA is coming from between those two pieces and how you think about those two pieces as well.
Where is the EBITDA coming from, the retail?
Between the licensing and traditional retailer, yeah, 'cause you have the ABG investment, which is.
No. This is ABG more or less owns the brands, a lot of brands and license income. The retailers run e-commerce and operate stores, so it's essential that like any other retailer and, you know, the valuation of those should just be the way you look at, you know, any other public company retailer. I will tell you today, I mean, from an EBITDA multiple, retailers are more valued at a higher EBITDA multiple than Simon Property Group.
What is a better margin business, do you think, the licensing or the traditional retailing?
Well, the licensing, I mean, it's a licensing business, are you amortizing the cost of buying the license or not? The brand, if you don't, they have a higher margin, but, you know, the gross margins of good retailers are in the 60%+ range.
Okay, thank you.
Thank you. Our next question comes from the line of Vince Tibone with Green Street. Please proceed with your questions.
Hi, good afternoon. How are same-property operating expenses trending versus 2019? Are you experiencing any pressure from wage inflation or extra cleaning costs, given most of the retailers are on a fixed CAM basis?
Not currently, no. I think we'll see how it impacts 2022, but not, you know, rising costs from our standpoint in 2021 shouldn't be all that material.
Are you much higher than where you were in 2019, or is it, you know, kind of adjusted for occupancy changes, like margins more or less the same in your mind or kind of expense ratios?
Yeah, I'd say, yeah, well, other than the drop in occupancy, I think, you know, in terms of operating, it's probably pretty similar to 2019, yeah.
Are you thinking about keeping CAM? Go ahead, sorry.
No, that's it.
I was just saying, are you thinking about the way CAM's structured any differently now, given the prospects of higher inflation? Or yeah, just curious to get your thoughts there.
Not really. No, I think, you know, the fixed CAM and obviously it grows in many cases tied to CPI. It's just an ease of doing business with the retailer. I don't see that changing.
Got it. Thank you. Maybe one last quick one for me. Could you just share your latest expectations for domestic property NOI growth from the year? I think the last time you formally said anything was at 5% at the beginning of the year, and I think it's clearly higher from there.
It's gonna be higher, Vince.
Any number you could throw out there for us?
Well, no. You know, we look at these things on an annual basis, but I'd hate to put a number in. What we're gonna be really based on where we were and what we guided to, you know, what will we should, you know, double it more or less, right? You know, more or less. Yeah, I mean, I think what did we guide to, 4% or something like that?
4.5.
Yeah. We should be in that range, you know.
Okay. I appreciate that. Thank you.
Yeah, thanks. Way to get it out of me, Vince. Way to go.
Our next question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your question.
Hey, thanks, guys. Thanks for taking my question. I sometimes wonder whether people are not seeing the forest through the trees here. I mean, you know, your guidance for the year is $0.60 over $2.22 estimates right now for consensus, which is, yeah, I suspect those numbers are gonna have to come up drastically. Let me get to my question here. It's about the leasing environment, and I'd love to get your color on what you're seeing. Obviously, you talked about the leasing spreads being negative, and again, those are backward-looking because those deals were negotiated, you know, call it three to six to 12 months ago, obviously when we were in a different environment.
There were many articles written about tenants wanting more turnover, sales, rent-based structures. You talked about that in past quarters about offering some of that, but actually as sales now are in excess of 2019 levels, comfortably in excess, apparently, are you actually capturing more rent, and what do you think that's gonna do for your overage rent? Also, how is that impacting your negotiations with tenants? Do they wanna go back to the fixed rents with a smaller turnover base? I'd love to get your thoughts on that.
Yeah. Thank you, Floris. I would say, look, our overage rent's gonna be, you know, significant this year. I do wanna put. I wanna underline, we still, you know, do not have international tourism. We think there's another. You know, I don't believe now. You know, the rules of who can come where and how and whatever are very, very confusing. Having made my own two international trips, I get, you know, confused on what I have to do to go from one place to the next. Next week there is a lifting of international tourism. I think it's, you know, we'll see whether it has any impact this year is kind of I doubt it.
Even with overage rent having a very good year this year, you know, we still think that, you know, there's another leg up if we get kind of the international tourist, you know, that we haven't seen for a couple, two, three years, right? Now, you know, the strength in the dollar may offset that to some extent, but, you know, we'll see. On your question about lease, listen, I think some of the folks that wanted to tie their rent to. We did it in a select few cases, not a lot. But yeah, they may suddenly think, you know, maybe they should do another kinda, you know, traditional and go back and do a basic deal. But by and large, Floris, there's not a lot. You know, it.
I'd say the negotiations about, you know, the structure of the lease and, you know, overage rent. I call it overage, but, you know, overage rent and break points, it's all pretty, I'd say, pretty consistent, so not a huge change in what's going on there.
David, maybe if you could, you know, touch on the specialty leasing environment as well. Obviously, last year when a lot of your malls were closed, clearly you couldn't have much kiosk income. Obviously billboards, billboard income is really driven by economic growth. That presumably was very low last year. What do you see? I mean, this is a, you know, could be up to 10% of your NOI. I mean, how do you see that part of the business performing as we head into 2022?
I think we're gonna have a very good year in 2022 on that side. Because again, it, you know, there's just a better appreciation for our kind of product and demand is good there, and growing, and traffic is, you know, still reaching, previous levels. I think they're gonna have a very good year this year, but a better year in 2022, at least from our initial kind of review of that business plan, that we just had recently.
Great. I mean, I sort of was asked before, but certainly the backlog of leasing, can you give us any more insight? I know somebody asked a question about that. Certainly in terms of, you know, what that could mean in terms of occupancy gains in 2022, 'cause clearly that's the easy income, if you will, 'cause it all drops down to the bottom line. Any sort of, you know, backlog that you're working with right now.
You know.
Presumably your leasing is busy and stretched to the max, you know, I would imagine.
Listen, I always worry they tell me what I wanna hear, but what they're telling me, okay, is, and what I'm seeing in my own, you know, having to deal with a few, retailer space demands, you know, demand is good, you know. I think, listen, the world is uncertain, as all get out, right? I mean, we all know it's just, it's a very, interesting time, the last several years, and this and the future is no different. For us, the good news is the demand for our product is good. Our folks are busy, and they're hitting the streets and making deals.
Again, we never give an occupancy number, but I would be very disappointed if we didn't have an uptick in occupancy next year.
Thanks, David. That's it for me.
Thank you.
Our next question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.
Hi. David, maybe asking Mike's question a bit differently and doing some back of the napkin math here. FFO per share guidance appears to anticipate a slowdown in Q4 versus Q3 after adjusting for the non-cash items. Could you help us understand what items might be impacting those expectations?
Your versus what you are doing or what we're doing?
You have 291 Q3, if we take out the non-cash items, and then that, you know, kind of assumes 270-280 in Q4.
You know, we'll see what we earn.
Okay.
We don't really look at it quarter by quarter.
All right. Maybe shifting gears a little bit to the percent rent leases. You know, first, I'm just trying to understand what portion of leases signed this last year are tied to percent rent deals, how does that compare to history? You also mentioned that overage rent will be significant this year. Is there gonna be seasonality associated with that? We're just trying to understand if we should expect a sizable pop in Q1 next year as Christmas sales and associated rent are calculated, or if it should be smoother throughout the year?
Well, overage rent is impacted by holiday shopping. There is some seasonality to it. We don't give out the specifics on what deals are percent versus fixed, though it's not a very big number. I mean, you know, overwhelmingly a high percentage of our leases are fixed. Sometimes we have unnatural breakpoints, which, you know, we can get into the mechanics of that later, if you'd like, where we do maybe in COVID a handful with some retailers where we lowered the fixed, but we got greater upside on sales. Ninety-some-odd% of our leases are all fixed rent.
I think I answered your question, unless I missed something.
No, you did. If we think about how leases are getting signed now that we're coming out of COVID.
Yeah
Should we expect to see those, you know, that percent rent number go down and maybe the just base rent number start going back up again?
Well, yeah, on rollover, sure, over time. I mean, again, it's a function of when leases expire.
Right. Okay. Thank you.
Sure.
Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.
Hey, David. Good evening.
How are you?
You mentioned earlier the stock being cheap, 13 times FFO, I get it, and you point out to your long-term average. I guess the one missing piece we haven't seen is the asset value clarity. I guess I'm curious where you peg a mall cap rates today. Was there anything in your recent mall refinancing negotiation that was informative about how the lending community is viewing mall values? How would you characterize the market appetite for mall refinancings today? Thanks.
Good. How many financings did we do in the-
We've done 22 this year, almost $3 billion.
Yeah.
The market is open, from a refinancing perspective, and supportive of high-quality assets.
Uh.
Um.
Yeah, look, I think, you know, we're, I'd say, you know, we're A assets. There's, you know, I mean, I've discussed this before, not to bore you, but, you know, there's not a lot of buyers, and sellers realize how valuable they are, and they want a really low cap rate. You know?
Yeah.
There's no asset in this country that would sell for anything above a five-cap rate, in my opinion, in my humble opinion.
No, I fully appreciate that. I was looking also if there's anything from the other side that you could share from how the lenders are valuing or any clarity on that.
I thought you were an equity analyst. What do you care about lenders?
Well, there's a value which the loan is ascribed to.
I mean, look, they look at debt yields.
Debt yields and cash flow coverage.
Yeah
is the metrics that they're using more importantly.
Sponsorship, obviously.
Okay. Well, I guess I'll move on to my next question. Thank you, though. I wanted to ask about the pricing and demand for your JCPenney boxes. Anything you could share on that? Thanks.
The ones that we own, we're not selling 'cause JCPenney's is performing terrifically well.
Okay. Fair enough. Thanks.
Alex, we have time for one more question, please.
Thank you. Our final question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Hi. Thanks for taking my question.
Sure.
In terms of the $7 of variable rents that weren't included in the base minimum rent, when would you expect to see improvement in that number? How much of that, those $7 could be moved to fixed?
What, you mean improvement or just when it goes to fixed, essentially, right?
Well, I guess two separate questions. When it goes to fixed, and then when would we see like an overall improvement in base minimum rents given the moving pieces?
Well, I mean, lease by lease to build that number up. I mean, demand is picking up, so you know, we're focused on driving our cash flow. Again, maybe you missed my, maybe it wasn't overly compelling, but you missed my opening remarks in that. You know, I would recommend, again, I know, I'd recommend you just kinda look at the cash flow of the company and not overly you know worry about a metric here or there. It just all kinda manifests itself in the cash. In terms of when that will end up in base rent, it's really, as I said earlier, it's just gonna be a function of when that particular lease rolls, when it expires.
You know, traditionally, when that does, you know, we're usually pretty effective at trying to garner as much of that overage rent or that percentage rent above the breakpoint back into the base rent.
Got it. Store closures are way down from prior years, and given the importance of holiday to retailers, but, you know, also challenges around supply chain, do you think this is potentially a threat to some of the smaller, lower credit retailers?
I don't think so. Honestly, the credit profile of, you know, the retail community is not bad. I mean, there's always gonna be, you know, a few out there, but I would say generally the credit profile is pretty, you know, knock on wood, pretty good. The retailers are always pruning their portfolio and so on. I don't think the supply chain's going to cause, you know. It might unfortunately cause a local, you know, mom and pop, some, you know, some stress, but I don't think it'll cause a regional or a bigger chain, you know, financial calamity.
Thank you.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to David Simon for closing remarks.
All right. Thank you and appreciate all the questions. We'll talk soon.
Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.