Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2019 Simon Property Group Incorporated earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Tom Ward, Senior Vice President of Investor Relations. Please go ahead, sir.
Thank you, Sydney. Good morning, everyone, and thank you for joining us today. Presenting on today's call is David Simon, Chairman, Chief Executive Officer, and President. Also on the call are Rick Sokolov, Vice Chairman, Brian McDade, Chief Financial Officer, and Adam Reuille, Chief Accounting Officer. Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For prepared remarks, I'm pleased to introduce David Simon.
All right. Good morning. We had a very busy and productive quarter and very pleased with our financial results. Our results of the quarter were highlighted by funds from operation of $1 billion, $81 million, or $3.05 per share. We achieved this consensus this quarter, even with certain unanticipated retailer bankruptcies, reduced property level NOI from the acceleration of properties undergoing significant redevelopments, such as Northgate, compared to our budget, reduced overage rent from tourism spending, including the negative impact from the continued strong U.S. dollar, and lower distribution income from certain international investments. We continue to grow our cash flow and report solid key operating metrics. Comp NOI increased 1.6% for the third quarter, and total portfolio increased 1.3% for the quarter. Portfolio NOI was negatively impacted by 50 basis points due to properties undergoing significant redevelopment and the unfavorable FX impact due to the continuing strong dollar.
Year-to-date, comp NOI has increased 1.7%. Retail bankruptcies negatively impacted our comp NOI by over 100 basis points in the third quarter. As a reminder, our Japan Premium Outlets and Designer Outlets in Europe produce over $1,000 in retail sales per square foot. All of our 26 international outlets, excluding Canada, which is in our basically North American portfolio, generated comp NOI growth of 6.3% on a constant currency basis, which, as a reminder, is not included in our comp NOI, and if you did that, we'd be well over 2%. Retail sales momentum accelerated in the third quarter. Reported retail sales per square foot for malls and outlets was $680 compared to $650 per foot, an increase of 4.5%. Leasing activity remains solid. Average base minimum rent was $54.55. The malls and Premium Outlets recorded leasing spreads of $12.10, an increase of 22.2%.
Our malls and outlets occupancy ended the quarter 94.7, an increase of 30 basis points compared to the occupancy at the end of the second quarter. Again, tenant bankruptcies affected that by roughly 60 basis points. On an NOI-weighted basis, excluding our international outlets, which I discussed above, were as follows: reported retailer sales on an NOI-weighted basis is $867 compared to $680 per foot. NOI-weighted sales growth was 6.1% year-over-year compared to 4.5%. As mentioned, occupancy is 95.8% compared to 94. Average base minimum rent is $73.14 compared to the $54.55 number. Our weighted comp NOI growth would be 2.7%. We started construction on a new Premium Outlet in Tulsa, Oklahoma, scheduled to open in the spring of 2021.
Construction continues on four other new international outlet developments, Malaga, Spain, Bangkok, Thailand, West Midlands, England, and not to forget Normandy, France. Which we expect to be a terrific new outlet center. We had a very busy quarter in terms of completion of redevelopment projects, in particular, expansions on several of our high-performing international outlets. We opened including two in South Korea and one in Vancouver Designer Outlet in Canada. During the quarter, we started construction on our significant redevelopment at Tacoma Mall. At the end of the third quarter, we have 30 properties across all of our platforms in the U.S. and internationally, with the share of the net cost of approximately $1.4 billion. As a reminder, this is being funded by our internally generated cash flow.
We announced, and as you are aware, we closed on our new venture with the Rue Gilt Groupe to combine our Shop Premium Outlets marketplace with RGG's highly successful Rue La La and Gilt, creating a new multi-platform dedicated to digital value shopping. We're very excited to expand our omni-channel capabilities in partnership with RGG, which is a very profitable company with significant sales. Our industry-leading capabilities in the physical outlet space, combined with RGG's exceptional e-commerce success, will give shoppers an enhanced access to the world's best brands and most compelling deals, both online and in store. You saw the announcement this week regarding strategic investments. I won't belabor that other than we're very excited about the transactions that we're investing in, Life Time, Pinstripes, Soho, Parm, Sports Illustrated, Allied Esports. You can now, for those of you that really like gaming, please enter the Simon Cup.
We encourage you to do so. You'll have a lot of fun. I will not be funding the analyst if in fact one of you wins. Look for us to open Sports Illustrated sports gaming restaurants in the future. Now, balance sheet. We completed three tranche senior notes totaling $3.5 billion at a coupon rate of 2.61%, average weighted terms of 15.9 years. Our offering marked industry milestones. Prior to our issuance, no real estate company had ever issued $1.25 billion of 30-year bonds in a single issuance, and the interest rate for each of the tranches was the lowest achieved by any real estate company for similar notes. We, in October, completed our four early redemptions of our senior notes totaling $2.6 billion. During the quarter, we repurchased 1.15 million shares. After the bond redemptions, our liquidity stands at $7 billion. Balance sheet's in great shape.
We announced a dividend of $2.10 per share, a 5% increase year-over-year. We'll pay $8.30 per share in dividends in 2019. That's an increase of 5.1% compared to all of last year. We've grown the dividend more than 8% over the last few years. As a reminder, our annualized dividend yield is greater than 5%, which is more than 350 basis points higher than the 10-year treasury, which is basically at a record spread. We're more than 1.5 times covered in terms of our dividend coverage for our FFO. We've paid out, since we've been public now, well over $30 billion. A lot of dough. Just to update finally.
Guidance is $12-$12.05, which is an increase of $0.03 from the bottom end of the range after giving effect to the $0.33 debt extinguishment charge as we outlined for you when we did our notes deal a month or so ago. That's it. We're ready for questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Craig Schmidt with Bank of America. Please proceed with your question.
Oh, great. Thank you. I just wanted to touch a little bit, you've been very active in terms of developing your experiential tenants for your assets, and I just wonder how high could you be taking this penetration in the next, say, two or three years?
Well, I would say to you, the level of interest and new retailers in this category continues to amaze us. They actually are very interested in our real estate. Despite the negative narrative that you see from the general media, they all want to locate in the mall and in our real estate, and I think we're just at the beginning of that. I continue to expect us to redevelop our assets with those kind of retailers significantly over the next decade.
Yeah. I was just thinking about the Southdale, where you're replacing a Penney's with the Life Time assets. What kind of lift could that give to that center?
Significant. They'll have 5,000 members. They're great for the community. They are, without question, the best operator of a Life Time resort in that whole industry. They blow everybody away. They're great partners, good friends. We expect continued growth there. They reinforce our real estate as a place for the community. I couldn't be prouder working with them side by side and as partners.
Okay.
They also have a world-class shareholder base. As we create kind of the next generation of our company, we're associating ourselves with world-class entrepreneurs, partners, investors. We could sit here and talk about selling an outlet for $1 million, but I encourage you to think about our company differently.
Lastly, I know we've touched on this. You were saying human resources and permits are probably more of a generator than your access to capital. Are you thinking you might have to accelerate your capital spend in the next few years, just given the redevs and developments you're doing, and you seem to continue to be on pace for, whether it's the new developments in the European outlets, et cetera?
I think it's going to be, within a margin of error, relatively consistent with what we've been doing the last couple of years, Craig. We're spending $1 billion-$1.5 billion per year. That's not going to jump up to $2.5 billion just because of some of the constraints that we have, not financially, but just execution. I would expect us to continue to be in that range over the next few years.
Okay. I appreciate it. Thanks.
Yeah, sure.
Thank you. Our next question comes from Christy McElroy with Citi. Please proceed with your question.
Hey, it's Michael Bilerman here with Christy. David, Christy and I both picked up our gold cards, though I don't think we're going to win. Our kids probably have a better chance of doing that than we do.
Yeah, I would get one of your kids to enter it, and then they may have a better shot than you, Michael. Okay?
Exactly. If you think about all these investments that you're making in a lot of the consumer-facing brands, you went through the list on the call. It was reported in the press that the Soho House one was about $100 million. How should we think about the totality of capital that you have out today across all of these different investments? If you look at the balance sheet, I'm not sure if it's in the other assets category, but if it is, that totality's gone from $1.2 billion up to $1.8 billion over the course of the nine months. Can you give us a little bit of a sense of the total money that you've put out across all of these different exciting ventures?
Yeah. First of all, just to clarify, the increase in the other assets is basically because writing up the leases to value. Because of the new accounting rules, that's the biggest change, okay? You can't go from that number to what we've invested by any stretch of the imagination. That's number one. Number two is, to the extent that we reach materiality, we're obviously going to have to disclose that in our financial statements, in our Q and our K. The other assets is, just so you know, is basically the increase in those deferral.
Right
yeah, it's writing up, and that's $525 million, roughly, when you have to write up your leases to market with the new accounting rules, okay. I would say it this way. We certainly have not reached our outside investments to the level of materiality. That's the first point. Second is, I look at it, we're basically reinvesting our embedded gains that we have in Aéropostale and ABG and some of the other venture group investments into some of these things. Right now, we're playing with the house's money, and it's not material. I don't think the Soho House number is right. I'm not going to go through each one at each level. Again, I'd encourage everybody, try to think about us a little bit differently.
What we're doing is, we're making these investments to learn so that we're going to be, number 1, a better company. Two is creating investments with great partners, with great entrepreneurs, with great shareholders, I think is going to exponentially increase our opportunities, both in our physical and ultimately in the online world. The level of activity that we're seeing is just very encouraging, is all I can tell you. I think we're at the epicenter of kind of physical, online world, entertainment, creating kind of the next generation destination center, and we're all trying to put it together. At this point, simple thing to think about is make sure you understand that on the deferred assets, number 1.
Yep.
Number two is make sure you understand we're not at the materiality level, and number three is it's basically we're rolling the embedded gains. The way I think about it is I'm rolling the embedded gains in our future investments, but we're also making these, not as a learning experience, because who cares about learning? We're doing it to make money, and I expect all of these to pay off in the future.
David, you've obviously been critical to the company's success for well over 25 years. You signed your last retention employment agreement back in 2011. That expired back in July. Where do things stand in terms of are you going without an employment agreement at this point, or is that still being worked on?
I have no employment agreement.
You'll just be an employee at will with everybody else.
That's the way it's shaping up. Yes, that's the answer.
Yeah. Christy has a question too.
Hey, David. Good morning. You mentioned 100 basis point impact, I think, to comp NOI from bankruptcies in Q3. Just to try to get a sense for the impacts that have already been incurred in Q3 versus what could be incremental in Q4, just with regard to the Forever 21 bankruptcy filing, was there any reserve in the revenue line and impact to same store for non-payment of pre-petition rent? Have you seen any impact thus far from Barneys or Kitson at this point?
Not at this point. We don't really go through each and every retailer. I don't think it's fair, given the size of our company, for us to talk about specific retailers. I want to defer on that. The reality is, we've updated our guidance, we've narrowed the range, and all of that's kind of embedded in that. I think the important point is, a number of these were unanticipated from our budget. We told you what our budget was at the beginning of the year. We don't update our comp NOI, as you know. We would've well outperformed it. The biggest variable we've got right now is still the overage rent in our tourist centers, and we'll see how the fourth quarter shakes out. To me, that's the bigger variable than anything else.
All of the noise that is out there from certain retailers is kind of embedded in our guidance for the year.
Okay. Thank you.
Sure.
Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Please proceed with your question.
Thanks. Good morning. I guess, David, maybe you or Rick could just talk about sort of the leasing pipeline and the momentum, and as you think about 2020 and kind of where you sit in terms of leasing for next year and just the tenant demand, how would you sort of describe the environment today versus, say, a year ago, and how do you sort of feel like you're shaping up on 2020 expirations?
Hi, Steve. It's Rick. In fact, David and I have just slogged through 12-hour days going property by property, and frankly, the environment is still strong. There are a lot of tenants that want to access our properties across all three platforms. We are doing a whole lot of leasing so far this year. We've done almost 10.5 million square feet. You see our rents are up, our spreads are up. In a lot of instances, spaces that we're getting back, we're putting in more productive tenants at higher rents.
Okay.
I would just say, look, next year, it does take time. We are having a high bankruptcy year. There's no denying that. As we put together our plan for next year, I think we'll be okay. We're hustling, we're finding new tenants. The biggest setback that I see for next year is not so much replacing the bankruptcies, but really getting our redevelopment pipe open. We have taken a step back this year, a reasonable level of cash flow. Forget whether it's comp or however you want to describe it. We've taken a reasonable step back this year because of taking down properties to redevelop. We are never a company that does. I've seen so many companies throw away the year and say, "Well, we'll get back to 2021. We'll get back in 2022." We do not do that.
The reality is, we're going to come in with comp NOI that's going to be not so bad. It's a little variable, as I've described repeatedly with the tourism slowdown, which we pointed out three, six months ago, and now you see it across the board for both retailers and companies that have exposure to tourism and the strong dollar. We are still going to deliver comp NOI growth that's not going to be that, as one of my heroes would say, not too shabby. Next year, we don't give guidance until, as you know, end of January. I think it'll be fine even with the bankruptcies that we've got to lease up and the fact that we're still in a massive redevelopment number. That stuff, the redevelopment takes time. We are in that business. We don't have throwaway years, Steve.
You know that about us.
No, look, I appreciate that. I guess, again, trying to delve a little bit onto the redevelopment and just thinking about sort of next year and some of the headwinds. You're taking down Northgate this year. As you sort of think about, I guess, those types of projects that have negatively impacted, do you expect those to continue, number one? As you just sort of think about the list of bankruptcies this year and you sort of think about possibilities for next year, does the list of potential bankruptcies next year look a lot smaller than maybe it did a year ago?
No. Listen, I think we're flushing through most of the dudes, okay? I actually think Now, who knows? I think we're kind of reaching bottom in 2018 on that stuff, or 2019 on that stuff. It's rivaling what happened in 2017. It's not like something that we haven't experienced before. We know what we have to do. Again, I don't want to get ahead of our guidance, but you're not going to see a dramatic, "Oh my God" from us, okay, when we present our plan.
Okay, thanks.
Sure.
Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, good morning. Your third quarter same store NOI growth of up 1.6% seems like it's the best in the mall sector. I was just wondering if you guys could go through any thoughts you have on how you're able to differentiate yourself. Is scale helping the mix of property types or something else?
Well, if you look over a long period of time, I think we've done that for a number of years. I don't know. It's a function. We have good people, good assets. We're diversified, not tied in one particular regional place. Again, the fact of the matter is, if we put in our international business, which we really don't have, we're thinking about it, but we don't want to confuse people. We'd be well over 2% comp NOI growth. Don't forget about our international business. It's 26 assets. Again, excludes Canada because we had put Canada in our premium outlet business from the get-go. I don't know. We're focused on the business and running it day to day the best that we can.
I don't really want to compare or contrast, but this isn't the first time we've done that, I guess, is what I want to say. Right, Rick?
Exactly. Listen, we grind every nickel. Everybody pays attention to every aspect of our business on the income side and the expense side, and we've been doing it for a very long time, very consistently, and we intend to continue to do it.
Yeah. Here's the culture. We go through every asset while we're planning. We were here till 9:00 last night. We're not sitting here planning how we're going to communicate. Maybe we should, because sometimes we garble the message. Well, all the time, maybe. We've been, the last two days, going through our mall portfolio today, then next week, we go through the international business and each category. I've offered Bilerman to come here and see it, but Ward's telling me not to do that again. The reality is, we're doing that tonight. We did it all day Monday to 9:00. We do it all day today. Right after this call, we're doing it. There's no downtime. We're not planning how to communicate what we're doing. We're just doing. That's the culture.
Got it. Okay. I was wondering maybe if you guys could talk about the new outlet in Oklahoma that you're working on, just what pre-leasing has been like and what other retail options kind of are in the area.
Well, we have a very good mall there. Not to dwell too much on demographics, it's the largest trade area without an outlet center. We've been working on it for a while and based on our success in Denver, and tenant demand, we feel extremely confident we're going to be able to deliver it for a good return in a very good market. Tulsa is a very good market with good income demographics and I think it's really our bread and butter. Honestly, if we have to pre-lease, we're not the kind of company we need to be. We don't really pre-lease, so to speak. We're very confident that we'll be able to deliver the product that we want to deliver.
Okay, thanks.
Yeah.
Thank you. Our next question comes from Jeremy Metz with BMO Capital Markets. Please proceed with your question.
Hey, good morning. David, just wanted to go back to Michael's question a little bit on the Simon Ventures and some of these other investments you made, and just hoping you can expand upon your last comment, but, in response to his, just in terms of how do you really think about and measure returns for some of these, just given some of the clear tangential benefits that you're obviously looking to pull from doing these?
Well, just to be clear, we expect these returns to be similar to what private equity type returns, and they must stand on their own. We're making them because we think there's potential to do business with that partner. They're two separate decisions. One is, for instance, in Life Time, it's very simple. We looked at a multiple of EBITDA, we looked at their growth, we looked at their future, and we're very confident that we're going to get a multiple of our invested capital. Oh, by the way, they're wonderful partners, and we're going to do arm's length business with them going forward, and to me, that is a perfect scenario of a win-win. The investments must stand on their own. We look at them through a private equity lens, much like everything else we've done.
At the same time, if we can do business with them on an arm's length basis, that's the gravy. That's basically how we look at it. Again, we expect that. By the way, we've had some write-offs in our venture group, our venture group's a little more at the early days of investing. Not an A round, kind of either BC round or even D round. The ones that I've announced here this week are ones that are basically well-established companies. This is, in many cases, growth capital or just solidifying our relationship, and we think it's a good investment. Again, these aren't at the point of materiality. Again, I want everybody to put the size of our company in perspective, we are going to make money on those investments.
Number two is we are going to learn a lot because a number of these companies are leaders in their industry. We're not too old, Rick and I, we're close.
I'm older.
We're close. We're close, but we're not too old to learn. Not to diverge, we were up at the RGG board meeting last Thursday or Friday, I can't remember. The amount that we are going to learn, and in addition to the opportunities that we have as a partnership going forward, but the amount We're going to be a better real estate operator. This is what I need everyone to try and appreciate. We are going to be a better real estate operator the more we know e-commerce, okay? The more we know how they integrate. Being partners with one of the best entrepreneurs, frankly, ever in the e-commerce space, one of the early pioneers, and that team, just separates, I think, ultimately, what we're going to be able to do.
Again, it's a profitable company, and they do several hundred million dollars of sales and all this other stuff. We wouldn't have done it had we not felt like the company was worth it. The reality is, it's going to accelerate our marketplace efforts. We're going to make money in that investment, but we're also going to be better real estate operators because of that investment. We're going to know our retailers better, and we do already, but this is going to take us, hopefully, to another level. Technology and how you integrate it with the physical properties and with our retailers, I think it's going to be very interesting to see how it all evolves.
Yeah, great. Thank you for that.
Sure.
Just the follow-up I have is just on the densification projects. You removed the disclosure from the sub, but regardless, you obviously have a number of projects going on that are going to deliver here a bit in 2019, but really next year and beyond. I just wondered if you could talk about the pipeline. What's the total dollars at a gross cost basis today that you have underway, and I guess what's beyond what was last disclosed, I guess, last quarter? How much additional opportunities are you working on currently, given some of the other needs here for capital? It's a bit of a different skill set, so I'm assuming there's a human capacity to how much you can really have going on at any one point along these lines.
Yeah. Don't read anything into the fact that we took that out. Here's why we took it out, and we could put it back in. Number one, if they're under construction and we've approved it's in the detail, i.e., Phipps is already in the detail. That's number one. Number two is we are also outlining other stuff that's being done on the peripheral of our properties that we aren't doing, I didn't want to mislead the market somehow, even though we asterisks that it wasn't our project. We took that out. Three is the pipeline is so big, we weren't doing the right discipline of what's in there because it is a big pipeline. We just felt like it's probably better to communicate it when it's been approved.
The pipeline is actually, I didn't want to just list a BS schedule that says, "Here's all the densification we're going to do." I'd rather just put it in the 8-K when we actually are doing it. That's the nature of our company, as opposed to outlining potential stuff. The pipeline continues to be very big. If the Northgate continues to evolve, it's a $1 billion project with office, residential, all sorts of mixed-use stuff. We have the Houston Galleria development. Again, that could have been on a pipe, but we're not quite ready to start construction. You'll continue to see. What's the number? Over $2 billion-$3 billion, if I had to put a number on it. I think it is so much ingrained in our business now, there's no reason to separate it.
It's just part of our 8-K that you'll see as we approve deals. I look at it as an evolution of our sophistication and our ability to execute. It's just part of our portfolio as opposed to, boy, this is a separate, distinct schedule. It doesn't need to be anymore because it's just part of the nature of what we do.
Got it. Thanks for the time.
Sure.
Thank you. Our next question comes from Alexander Goldfarb with Sandler O'Neill. Please proceed with your question.
Hey, good morning out there. Two questions.
Okay, Alex, why do you say good morning out there all the time? Do you think we're that far out there?
Well, it's just a standard hello greeting.
Okay.
Anyway, now you're asking me to think on my feet, which is tough.
Exactly. I threw you off. Sorry about that.
Two questions. First, on the debt side, obviously you had strong demand on your unsecured bonds. You priced pretty tight to Apple. Maybe you can just talk about what's going on in the mortgage market. Some of the folks that we've spoken to have said the lenders are either pulling back or trying to pare exposure or tightening terms, lowering LTVs. We all saw the LTV and the underwriting for The SoNo Collection. Maybe you can just give a sense of what's going on in the mortgage side of the business and whether it's by asset type. Is it across the board, or is it certain productivity levels of malls, et cetera? Just a bit more color on there.
Good morning, Alex. It's Brian. Look, I think from the mortgage perspective, this year it's been a relatively light year from a maturity profile perspective, but we are much more active next year. We are already in the market on some of those assets and are receiving solid indications back in line with where our expectations are. Look, I think at the end of the day, we're not seeing any reduction in appetite, but certainly that's a function of our asset quality. Look, we expect that market's going to be there. I understand that there's a few deals that are out there now that will get priced here in the next 6-8 weeks, which will further provide price discovery in that marketplace.
Yeah. Look, I think, I would reaffirm Brian's points, but also just to add a couple things. Number one is sponsorship in, again, I'm not reflecting any other deals that are out there, but this is the case for everybody. Sponsorship is critically important. That's number one. The balance sheet, that's what's great about where we stand is that we can do all sorts of different financings. We're not tied to the secured market or the unsecured market. That, again, is a material separator, which I mean, we didn't harp on it again today because when Tom does this first thing, he usually puts that in. I'm like, "I think people are tired of us talking about it." I would think that, and the proof is always in the pudding, which the pudding was pretty damn good a month ago, okay?
The reality is we do have this separator in our real estate peer group because we have the ability to go in and out of the markets pretty effectively, whether secured, unsecured, et cetera.
Okay. That's helpful.
Yeah.
The second question is on all the new investing you're doing, the Gilt, the Sports Illustrated, whether or not you do Forever 21. All these things, as you underwrite them, is your tolerance for sort of the time to get to cash flow positive, is it the same as you would underwrite for real estate? Do these projects take longer, or do you allow yourself more rope to let these things go before you decide ultimately to just kick the venture out and move on to the next? Just curious how your underwriting is different and the time it takes to profitability versus the non-traditional retail ventures versus traditional retail real estate.
Well, I think it really depends on the category. I mean, the reality is all these companies have comparables. In some case, they're valued at 5x cash flow. In some cases, they're valued at 20x cash flow. It's really a function of what we see in the future and where the market is. We don't really get ahead of ourself one way or another on that. Like I said, I think we look at it similar to with respect to Simon Ventures, what kind of the venture people look at it. We look at it with the same lens. In the private equity, I think we do the same thing.
Again, we have this extra sauce in the sense that we're expecting to get other benefits out of it, which are not necessarily in our numbers, but which is important to us. I don't want to talk about retailers, specifically. Just so everyone is clear, we're not involved in the one retailer you mentioned about investing or doing anything on that front. I mean, I think it got mischaracterized last call, so I just want to be clear on that. We're not involved in any retailer that is in BK, in terms of us looking to invest. Just to be clear on that, Alex.
Okay. Thank you, David.
Sure.
Thank you. Our next question comes from Richard Hill with Morgan Stanley. Please proceed with your question.
Hey, David. Look, I think the reason that you're differentiating yourself is you're playing a lot more offense than maybe some of your peers who are playing defense. With that in mind, I have one question and a follow-up to that. Look, 7%, 8% development yields, to quote you, "Not too shabby," in this world backdrop of slow growth and low rates. Are you seeing maybe even more demand from sovereign wealth funds, other foreign investors to maybe partner with you on your developments with an eye on the long term?
Well, look, I think it's a really good question, Rich. It's funny. Most of those folks, I got to be careful here, I mean, right now, let's face it, we're a contrarian investment, okay? If you look at our multiple compared to kind of most of the other non-retail real estate companies. If you look at cash flow stability or multiples or however you want to slice it and dice it, in today's world, we're contrarian. There are not, frankly, a lot of contrarian investors. There's more herd mentality. There are some very sophisticated sovereign wealth that would love to partner with us on new opportunities. Again, when I say new opportunities, existing real estate that they may have, and they want someone like us to do that.
We're starting those discussions. They're very early days just to get to know them. The reality is, not a lot of contrarian investment, and for whatever reason, we are considered a contrarian. You do make a good point. We're on the offense, and the fact of the matter is, we've been so busy and excited about both the redevelopment, the densification, and some of the new ventures that we've had that's perfectly fine for us, and we're going to continue to run the business. I do think at some point, there'll be a swap back to reality. Those kind of investors would rather buy certain asset types at a three and a half yield, I won't name names, as opposed to 6-plus in class A regional malls. That's been historically a bad bet over time.
Who am I to say I'm smarter than those other guys? Listen, I'm willing to play the game and see who's right in the long run.
Got it. One follow-up question to that. Look, you have a tremendous amount of free cash flow that you're spitting off, a super strong balance sheet. Why wouldn't you just ramp up CapEx as a percentage of your operating cash flow right now, and spend even more money to redevelop your properties for the future? I guess the question I'm ultimately asking is, you had said CapEx is going to be relatively range bound. Why wouldn't you play even more offense than what you're playing right now?
It goes back to literally some of the big projects we have. We're still constrained by getting approval. We have two or three big ones that are in the approval process. Just to name three that jump out at me, Brea, Orange County, Stoneridge, which is in the East Bay area of California, King of Prussia. We don't have the approvals yet to start. That's the biggest limiter. We are building office and the reality is, that's the one area we're not going to build spec on. Depending on the size, we're going to want some lead tenants. We're not foolish. We think we have really good product that's differentiated in the markets that we're contemplating it. Getting the lead tenant does take a little bit of time. I think we're pretty aggressive. Northgate's a great example.
I think Northgate, we could have been a little more methodical. Just to give you, it depresses me a little bit, but just to give you an order of magnitude, roughly we had in our numbers this year to do about $15 million of NOI, and it's going to do $5, roughly. Yeah, $5. Come on, I know these numbers. That's because we accelerated. We basically decided, let's just get on with our lives and tear the mall down. Okay? I happen to be out there, and the mall is coming down, believe it or not. We are doing it. It's just, I think we're moving pretty fast.
In some of these areas, if we are building office, we're not going to get over our It's a 100,000 square foot cutesy building, that's one thing, but we're not going to get over our skis too much on some of the stuff to make sure we're in good shape.
Got it. That's helpful, David. Thank you.
Sure.
Thank you. Our next question comes from Nicholas Yulico with Scotiabank. Please proceed with your question.
Good morning. Sorry if I missed this, could we just get the bankruptcy impact on same store NOI growth this quarter? I think it was cited as about 100 basis points in the first two quarters this year.
It's 100 year to date, and it was 60, roughly 60 in this quarter. Correct or no?
$100 for the quarter.
$100 for the quarter. I'm sorry. $100 for the quarter.
Okay, thanks. Second question is just going back to Forever 21.
Yeah.
When we looked at the bankruptcy filing for them, you only have one existing store on the store closure list at Roosevelt Field. This excludes all the stores in development, which will not be opening. I guess, that store closure list, should that give us comfort that there's one store in there, or should we be expecting that, of your 98 stores with them, either you already gave rent relief or you're planning to over the next year?
Well, again, we don't want to talk about specific retailers. We'll have to see how that bankruptcy evolves. There are more stores that they rejected that, or about to reject that they never opened. Again, I don't want to get into nitty-gritty detail, but in that particular case, since you brought it up, it was Riley Rose. We had a handful of those that had leases executed that won't be opening. They weren't in our initial numbers in any event, so you'll see some of those come out one way or another, but it's never been until they open, it's not in our document, I guess, or 8-K. We'll see how it goes. I want to be very careful here, so I'm not involved in it.
We're negotiating kind of the future, like every other major landlord. We'll see how it all shakes out at the end of the day.
Okay. No, it's helpful. I guess I'm just trying to tie it back to the bankruptcy impact year-to-date. If it was 100 basis points, I'm assuming there was not much in that from Forever 21 unless you've already renegotiated leases and it's almost 1.5% of your base rent. As we look forward over the next year, it kind of feels like that bankruptcy impact of Forever 21 by itself could be similar to your overall bankruptcy impact this year. Is that fair?
Well, I think you'll see we'll know more in 2020. It's not going to be material in 2019, and I think the focus is going to be really 2020, what that group is able to do going forward, which is out of our hands. We're going to have to wait and see. Again, I don't want to get into particular tenants, but our view of what happens with that and other bankrupt tenants will ultimately be in our 2020 estimates. That's the way for us to look at it. At this point, the materiality of any of these guys in the next year-end is not, in my opinion, going to be material. Okay?
All right. Thank you, David.
For you, it might be. $0.01 might be. Okay. We did update our guidance, and what we know today about the bankrupt tenants is in our guidance, and that's the important thing. Our view of some of these bankrupt tenants and what their plan is for 2020 will be in our 2020 guidance, and that's the best way I can answer that.
Thank you.
Sure.
Thank you. Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.
Hi. Just following up on what you were just talking about. With some of these bankruptcies having been unexpected in 2019, as you look out to 2020, do you think a base case of 2% SSNOI growth would still be achievable?
We give our guidance at the end of January. Do we have a date yet? Not yet.
We're waiting to see if the Colts make the Super Bowl because we want to work it around that day. That was a joke. I actually think they're a pretty good team. Where we give that, all of that will be reflected. We've never given 2020 guidance, and people have estimates all over the place, so I don't really opine on it one way or another.
Okay. In terms of spo.com, how are you and Michael Rubin thinking about its value proposition? How much crossover of the product you provide online through spo.com is available through other online distribution channels? Do you have any sense of the price differential on spo.com and how it might compare with other discounters like Ross or TJ?
Yeah. Look, that's a complicated question. I think the important thing is, we both think, and not just us, but our SPO team and the existing RGG team couldn't be more excited about the future opportunities together that we have. I think their team is unquestionably excited. I think it's going to be a great partnership for our company. Together we're going to do a lot more, both in terms of growing their existing business and then the partnership taking the origins of our business and extrapolating that going forward. It is early days. We're very committed to making this exciting. Between all of our relationships with the brands and all of our physical attributes and their e-commerce attributes, this could be a really, really significant opportunity for our partnership. Let's give it a little bit of time.
Can't give you an exact roadmap because some of the stuff we like to keep to ourselves because we are still growing the business, and there's a lot of competition out there on that front. Again, couldn't be more pleased with the potential opportunity in the future.
Thanks for that.
Sure.
Thank you. Our next question comes from Ki Bin Kim with SunTrust. Please proceed with your question.
Thanks, Don. Good morning. You've been reporting improving sales per square foot for the past several years. That formula, there's some noise to it because the denominator is always changing. I was wondering if you had a sense of the total sales productivity at your centers over the past couple of years. Just trying to get a sense of if it's becoming more vibrant or somewhat static over time. I realize, like hotels and apartments, there's no sales data for it, but just trying to get a bigger picture sense.
I will give you the benefit of the rule of large numbers. There is absolutely, given our large portfolio, your comment about the denominator changing is irrelevant in terms of our results, because one particular property going in or one particular property going out, or 10 going in or 10 going out, ain't going to move the number, my friend. That's number one. Number two is, many cases in our new developments, they come in below our average. With that said, if anything, it's understating it. Finally, I'll say, we continue to believe that we're reporting This is really important, and I've said it again, and I don't want to keep saying it, but we're giving to you what's reported to us. In some cases, what's reported to us is not actually gross sales.
Okay. Just going back to the topic of your investments that you're making in places like RGG or Authentic Brands. It's easy to get the sense that you're focused on making your fleet better and adding on different types of opportunities, like through private equity or venture capital. When does it start to become more interesting to actually increasing your fleet size? Is it the case that the offset opportunity in redevelopment and private equity type of investments is still just far and greater, a better opportunity than increasing the fleet size?
Did you say fleet?
Yeah. Small count, retail center count, things like that.
Look, I think we've historically have been acquisitive over our career. We just haven't done anything in a while. The fact of the matter is, we have so much going on and so many opportunities here, I feel pretty good. I don't feel like we need to do that, but if there's something out there that makes sense, we would look at it. I think it's business as usual for us in the focus being on. This sounds like gobbledygook, but the focus is just making us a better company. We got plenty of assets and all of these things that we're doing and attempting to do is to make the real estate and our company better. We are more than a real estate company in that we interface with brands and consumers to an unbelievable extent.
Why not take advantage of that reach, that we've done reasonably well, but we can certainly do it to much greater extent. That continues to be a focus for us.
All right. Thank you.
Sure.
Thank you. Our next question comes from Vince Tibone with Green Street Advisors. Please proceed with your question.
Hi. Good morning.
Good morning.
Could you elaborate on the magnitude of the decline in international tourism and the impact that had on foot traffic and tenant sales in some of your key gateway market properties?
Well, we don't give out specifics on that, but put it this way, the tourist centers have been relatively flat in terms of sales. We think, if we had a normal, what I'd call a normal dollar in terms of the strength vis-à-vis the Euro and other currencies and all the other noise that's out there, we would've expected a 5%-6% increase. I don't know if that, Vince, gives you kind of what you want, but some of our bigger international property sales have been flat. Traffic's actually not been too much the problem. It's been stable, but it's really we're seeing the flatness of the sales that we would've expected. When we did budget, we would've expected to have a 5% or so percent increase in sales.
Interesting. No, that's helpful color. Just one more from me, maybe switching gears a little. Can you provide some color on the trends you're seeing in the private market for malls? Do you think cap rates or the number of interested bidders has changed over the last six months or so?
I would say to you, I have not seen a change, but I would think that I have not really seen a tangible change. I still think investing is more or less a herd mentality. I was going to give an animal analogy, but I better refrain. Last time I did cockroach, which I'm not going to do today. I think the guys that have the money, retail real estate, it's not a commodity, so the operator really matters, so to speak. It's not like a warehouse that's one commodity versus the next.
Yep.
The operators matter, and the money that kind of goes in and out of commodity real estate, it's always kind of ebbed and flowed for retail real estate because who the operator is, has always been materially important. That's one aspect I'd say to you. The next is, surprisingly, I'm actually surprised about it, but the so-called smart money has not played a bigger role in this. They obviously have different points of view, and they may be right, but we feel pretty good about what we're doing.
No, that's helpful. Just one follow-up on that. Let's say the herd mentality does push cap rates higher. Is there a point where you would potentially come in and be an acquirer of single assets on the market, given to your point, that the platform makes a big difference and you could probably increase NOI at some of these acquisitions?
Yeah, I think if there was a good fit, we would certainly take a hard look at it.
Okay, great. Thank you.
I think that's the other point. I think that's a good point, Vince. We're not really seeing kind of the A assets show up on the market.
Okay. Yeah. That's helpful. Thank you.
Sure. No worries.
Thank you. Our next question comes from Michael Mueller with JPMorgan. Please proceed with your question.
Yeah. Hi, good morning. I guess following up on that, for the properties where you have JV partners, have you seen those investors want to exit more in recent years? Are they fine with the exposures, and it's more about where to park incremental dollars for them?
I would say a lot of them are following the herd mentality.
Okay.
I'm not trying to be cute. Am I clear on that? If not, I'll restate the answer.
No, I think so. I think so.
Yeah, I would-
With that in mind. Okay, great.
I think a lot of the folks out there are a little nervous about our business. I would just put it, not our business, not Simon Property Group business, but nervous about whatever retail generally. They do tend to follow the herd mentality. That's where somebody, maybe us, is going to make a lot of money. I assure you. I've seen this movie before, and our cash flows are very resilient. If you have good real estate and a good operator, they always evolve and always change. If you look at the mall that was built in the '60s, you look at the malls that were built in the '70s and '80s and '90s and 2000s, look at the redevelopment. My goodness, they changed a lot, and they're changing today. No one here is overly concerned about it.
A lot of people suffer from groupthink, okay? Maybe we do too, but we don't. We're in good shape.
Got it. Would you think over the next three years, five years or so, maybe we see a pickup in you buying out some of these JV partners? Is it a little bit more of a function of you've got a big redevelopment pipeline, a lot of capital that's going there, and you're getting bigger returns on that. I guess that's the trade-off. How do we think about that?
Yeah, we're focused. Listen, if they're nervous, I'm going to buy them at a real big discount, so let them get really nervous. I want them nervous, okay? Nervous is good for us. Okay? That's okay.
Got it.
The reality is there could be opportunities, but we'll see.
Okay. Thanks, David. Bye.
Sure.
Thank you. We have a follow-up question from Christy McElroy with Citi. Please proceed with your question.
Hello?
Christy, if your line is on mute, please unmute.
Hello?
Hey, David. Hey, David. It's Christy here with Michael. Just an accounting question for me. I know that the new straight lining of CAM was addressed on the last call. Straight line rents have trended higher this year. With the recent bankruptcies, I'm just wondering what kind of adjustments have been in there also for the write-off of accrued straight line rents deemed uncollectible, just with the bankruptcies this year, given the new rules around determination of uncollectibility. Just trying to get a good sense for what the normal run rate is for that line.
That all flows through. I don't have that off the top of my head. I would say to you, it's not material. We do that all the time, right? That we have to make that decision all the time, whether it's collectible or not collectible.
Okay. I just didn't know if there was a material impact on that line aside from that being elevated with the straight lining of CAM.
Not material.
David, it's Michael speaking. You talked a little bit about how your stock's a contrarian investment at this point, given the multiple, and you've used some of your significant balance sheet capacity to buy back your stock. You did about $300 million in the last six months. You talked a little bit on this call about maybe partnering with sovereign wealth. It sounds like either buying assets or managing assets they may own or look at new opportunities. No?
I don't think I said that, Michael. I said there are very few contrarian investors right now, and we're at the very early stages of seeing how they feel about the market in general. I just want to be clear on that, okay?
Right. I was listening to when you were talking about maybe working with them. I didn't know if there's an opportunity to either liquefy some of the value in the assets and the value you've created, because the debt markets provided you a substantial amount of capital at very attractive rates. It's your stock that is the one that's disassociated with the performance that you're putting up. I know in the past you've been reluctant to sell JV stakes in your assets to buy back your stock. I'm wondering if that's changed at all in some of these conversations that you're having, if you find that there's an opportunity to partner with contrarian capital that would want to do that.
Well, again, I have never been a fan to sell an A asset to make a mark, because A assets grow historically over time, and most everybody that sold an A asset, if they're going to believe it's an A asset in the future, regrets that decision. Okay? Buying stock back is a temporary investment decision, and the reality is we're in this for the long haul, as we've demonstrated over almost 26 years of being a public company. I think that's kind of the worst thing, frankly, we could do. Getting a mark on our portfolio is fool's gold. It's never worked, because the next question is, well, what about the rest of the portfolio? Again, just to re-emphasize, so the answer is, no interest in doing that, number one. Number two is, I don't want to overemphasize, and hopefully I didn't.
I'll look back at the call. We're not out running around saying, "Do you want to go?" People come to us, we'll talk to them about partnership interest, but we're not out soliciting sovereign wealth funds. We're not out doing that. The reality is we don't need their capital.
Yeah.
They know my number, 1-800-DAVID. Call me if they want. If they don't, they don't have to. Okay?
Right. I wasn't thinking about it from a mark-
I don't want to overemphasize. We've talked to a few here and there. I think they respect what we do, but I don't really know. Maybe that's a flaw in us that we haven't really solicited them just to have better relationships. We've done okay without them being a major player for us to get to where we are today. We've never needed that in scale. That's that. I don't want to overemphasize. We've had discussions here and there, because sometimes they call, sometimes they don't.
Right.
We're not out trying to buy partnership interest of ourselves or others. We're not out talking to sovereign wealth other than we'll have a couple of conversations. Look, the reality is, a lot of the institutional investors, as we all know, have a certain queasiness over retail. We've seen that before. It doesn't affect us. It affects you. It affects others. It does not affect me and my company and what we do. That's the important point.
Yes. I wasn't thinking about it from a positive mark.
Yes.
I was thinking about more so in being able to raise additional capital and invest in your stock. Just basically bolster that program that you're doing right now using the free cash flow and capacity, doing something more meaningful, if you're able to find an investor that's willing to partner with you. I understand the dynamics, and I understand giving up the growth. I just didn't know if that was part of the psyche today, just given where things stand.
No, look, I think. Again, we're spending more time on this than warrants it, but most people, most institutional investors would like to do something. As we've talked to them off and on over several years, most of them like to do external stuff with us.
Right.
The reality is we haven't been doing that, so we haven't been talking to them, okay. Again, we're spending too much time on this. On the other front, look, why aren't we aggressively buying our stock back? Listen, we love our balance sheet. I think it's an unbelievable advantage. Unbelievable. It's underappreciated. Sorry, Tom, I took out your paragraph in the teleconference text. To do $3.5 billion in four hours, 30-year bonds, blah, blah, is all pretty powerful. We don't want to jeopardize that. We've seen when people had overstepped their numbers, overstepped their credit ratings, how it kind of can retard the opportunities going forward. We don't want to do that. Importantly, we're in the process of adding to our already successful retail real estate portfolio. What does that mean? We're doing all this densification stuff. We're building our consumer-facing business.
We're positioning the company for the future, and as we all know, any leading company out there invests in the future. From Microsoft to Amazon to go down the list, every successful company understands the importance of investment. I want the balance sheet that allows us to invest. If I had a criticism of historical retailers, again, it's not for me to criticize, honestly, so I don't want this to sound like I know it all. The reality is what we've seen, what Rick and I have seen, because of strained balance sheets or overspending in one thing versus another thing, is the inability to reinvest in your business is a major no-no. We are not going to do the major no-no.
All right. Thanks for your time, David.
Sure.
Thank you. I'm not showing any further questions at this time. I'd like to turn the call over to Mr. David Simon for any closing remarks.
Okay, thank you, everyone. Have a great day.
Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.