Good day, ladies and gentlemen, welcome to the Simon Property Group first quarter 2017 earnings conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Tom Ward, Senior Vice President of Investor Relations. Sir, you may begin.
Thank you, Terrence. Good morning, everyone, and thank you for joining us today. Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Richard Sokolov, President and Chief Operating Officer, Andrew Juster, Chief Financial Officer, and Steven Broadwater, Chief Accounting Officer. Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For our prepared remarks, I'm pleased to introduce David Simon.
Thank you, Tom. Good morning. We had a great start to the year. We continued to achieve strong financial results that exceeded our expectations. We opened two new international outlets in April. We amended and extended our $4 billion revolving credit facility, further enhancing our strong financial flexibility. Results in the quarter were highlighted by FFO of $2.74 per share, an increase of 4.2% compared to the prior year. As a reminder, the prior year period included a net benefit of $0.08 in FFO per share from a gain on the sale of two residential assets. Normalizing the FFO per share growth rate for the gain in the prior year period, FFO per share increased approximately 7.5%.
We believe the FFO per share consensus for the first quarter did not include an estimate of our share of the losses from Aéropostale, which is typical for a retailer in the first quarter. Our share of those operating losses in the first quarter was $0.03. Even though on an annual basis we measure ourselves versus our plan and not First Call estimates, let's put in perspective that we have beaten First Call estimates 42 out of the last 44 quarters. The only two misses were one-time write-offs in 2009, which was the year of the Great Recession. This is an unprecedented performance for the REIT industry and the S&P 500. Let's go to operating metrics and cash flow.
We continue to see strong demand for our space across the portfolio, as evidenced by our mall and premium outlets occupancy end of the quarter at 95.6%, which was flat year-over-year. Leasing activity remained solid. Average base minimum rent was $51.87, up 4.4% compared to last year, reflecting strong retailer demand and pricing power for our locations. The malls and the premium outlets recorded leasing spreads of $8.31 per sq ft, an increase of 13%. Reported retailer sales per sq ft for the malls and outlets was $615 per foot, compared to $613 in the prior year period, an increase of 30 basis points. We are pleased to see retail sales increase from the prior year, as well as the seasonally strong fourth quarter.
Please keep in mind that Easter was in April this year compared to March of last year, which has a real impact on many leading tourist-oriented properties. Total portfolio NOI increased a very strong 5.6%, or over $80 million for the first quarter. Comp increased a strong 3.8% for the quarter. Our best properties are industry leading assets in large markets and drive the cash flow, growth, and profitability of our business. We understand that many of you believe that standard operating metrics just mentioned are of most interest. It is important to remember that each of those metrics reflect an equal weighting of each of the properties across our portfolio. We believe it is important to understand our operating metrics on an NOI-weighted basis, which more truly reflects the performance of the portfolio.
With that said, if we had done that, reported retailer sales on an NOI-weighted basis would be $765 compared to the $615. Average base minimum rent would be $57.60 compared to $51.87. Leasing spreads would increase to 16.4% compared to the 13%. We have the largest portfolio of the highest quality retail real estate in our industry. These high-quality properties drive the growth and cash flow of our business. Where retailers want to be located and consumers want to shop and create memorable experiences. These weighted metrics clearly demonstrate the higher quality nature and more accurately reflect the health of our portfolio. At the end of the first quarter, redevelopment expansion projects were ongoing at 25 properties across all three platforms, with our share of net cost at approximately $1.1 billion.
Construction continues on several major ones, which we've mentioned before, including The Galleria in Houston, La Plaza Mall, Woodbury Common, and Allen Premium Outlets. Most of these projects will be completed in the next 12 months. Subsequent to the quarter end, we opened two new international outlets with our partner in Shinsegae Group. We opened Siheung Premium Outlets in Seoul, South Korea. This center is our fourth premium outlet and will build upon its tremendous success we've enjoyed in the region. With our partner, McArthurGlen, we opened Provence Designer Outlet, the first luxury designer outlet in the South of France. Construction continues on another full-price development in Fort Worth at the Shops at Clearfork. Neiman Marcus recently opened, and the mall will open in the fall of this year.
We have three new outlets under construction, one in Norfolk, Virginia, two in international markets, including Malaysia and Canada. Our share of those four is approximately $300 million. Last week with our partner, McArthurGlen, we also acquired Rosada Designer Outlet, a leading outlet center in the Netherlands with significant growth opportunity. Just turning quickly to our capital markets. We were very busy as usual. We refinanced our $4 billion revolving credit with a 2022 maturity date. Our fortress balance sheet with access to many forms of capital continues to differentiate us among our peer group. Our liquidity stands at more than $7 billion. During the quarter, we also extended our $2 billion share repurchase, and we repurchased 870,000 shares of our common stock. Today, we announced a dividend of $1.75 for the quarter, which again, is an increase of 9.4% year-over-year.
Finally, we're reaffirming our 2017 guidance in the range of $11.45 to $11.55 per share, which is approximately 6% growth compared to our comparable FFO per share growth, which we believe will lead our retail real estate industry peers. This expected growth is a testament to the strength of our company and our ability to actively manage our portfolio to provide industry-leading returns to our shareholders, even in the current choppy retail environment. We now welcome your questions.
Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, if you would like to ask a question, please press star then one. One moment. Our first question comes from Alexander Goldfarb from Sandler O'Neill. Your line is open.
good morning. Good morning out there.
Morning.
Hey, how are you?
I'm doing great.
We can hear that. We can hear that in your voice. Quickly, David, first, you guys have a long track record of beating and raising guidance, but you've equally been upfront about the challenges out there in the market. Just sort of curious, the no raise in full year guidance this year, is that because there's more Aéropostale losses that potentially come up this year as you run that business? Or is it just general caution? Or are you seeing some things out there as your leasing folks come back or operations people come back that give you a little bit of pause?
Well, look, I think I would say the entire, again, 42 out of 44, that's 11 years. Is that 11 years, Scott?
It's 11 years.
That's 11 years. Okay. The miss from First Call was entirely Aéropostale, which is very typical for a retailer to have operating losses in the first quarter. I would, in answer to your question simply, it's a little bit of both. Aéropostale is a fourth quarter business for like most retailers, there's a range of outcomes there. We're still very comfortable with our investment, there is a range of outcomes that's a little harder to predict, we're being a little more cautious on that front. Obviously on the retail front, we've got some retailers that we're trying to navigate exactly what might happen, we're being a little more cautious on that front. We're not backing off our comp NOI number, even with that uncertainty in the retail world, we'll see.
We're not backing off on it, I'm optimistic that we'll continue to perform very well.
The second question is, you guys made the Life Time announcement, just curious in general, you've spoken in the past about a lot of apparel brands in the malls and the need to diversify. At the same time, there's also a consumer that's much more fickle. There was the Neiman Marcus article, but the shopper is much more conscientious about where they are. Overall, one, the ability for you guys to really diversify out of apparel into other uses at the mall, how's that going? Two, are you seeing the brands themselves get more serious about understanding that the consumer has changed, and therefore, full price as full price may not just work anymore, they need to invest more. Are you seeing the retailers themselves adapt?
Well, I am hopeful that the retailers will focus on improving their in-store experience, and that could be a lot of different ways. That could be through technology, that could be through a better look and feel, that could be through better merchandise, et cetera. Now, I will tell you, this is the great narrative that is being absolutely ignored by the national media. I continue to tour properties each and every week, as does Rick, as does our team. The traffic is there. It's so funny. When all the malls go out of business, what are these poor people going to do instead of going to the mall? I don't know. I just think the narrative is way ahead of itself. The traffic is strong. It was up throughout our portfolio where we measure it.
At the end of the day, we've all got to have a better experience for the consumer because they're a tough nut to crack. We also need a growing economy. Our GDP growth is going to be anybody's guess. What's your guess, Alex?
GDP, something probably a little over two.
Well, what is it for this first quarter?
It's subdued. If we get anything out of D.C., it should be better.
Well, I've been waiting a lot of stuff for D.C. I'm still waiting for the internet sales taxation fairness to kick in. The reality is, people are going to the good centers. Traffic is up. Our sales, even with Easter being in April, are up. Our NOI is up. Our comp NOI is 3.8. We've certainly got some retailers that have not performed the way they wanted to or should have. A lot of that was driven by the private equity leveraging up these businesses more than just the common theme, which is the internet. I am hopeful that they're going to reinvest in their stores, improve their inventory mix, and service their customer better. By the way, we've got to have the same pressure on us to do that. It's a two-way street. We're up to the challenge.
We have the conviction in our business to do that. As you know, if you go through our properties, by and large, they look, they feel great. We're going to redevelop a lot of opportunities. I think any department stores, if and when we get back, are a great opportunity for the company. King of Prussia is a great example. Penney's announced closing. We could have saved that deal. We decided absolutely unequivocally not. We're going to make that a mixed-use development. Won't be apparel oriented. Again, we're frustrated only by the narrative, but not by what's happening in our business.
Okay. Thanks, David.
Sure.
Our next question comes from Jeffrey Spector from Bank of America. Your line is open.
Good morning. Thank you. I'm here with Craig Schmidt. David, Rick, to be a little bit more specific on the retailers, there have been many more plans announced for spending in bricks and mortar for closings. I guess, can we be a little bit more specific and help us provide your latest view? Are you happy with the current announcements? Is it enough? Because the last couple of years, you have been asking for this.
Well, we really do not comment. I'm not sure I understand your question, we don't think this is a good forum to comment on retail specific issues. As I said, there are themes I'm happy to comment on, like apparel has been in the doldrums. We are moving our mix away from that. I think we've done that already. We've lowered it, Rick, by
I think it was five or six.
Yeah. We've lowered that already. We do think private equity has been more of a detriment to our, and by the way, most of these guys are my buddies, okay? When you lever up any business, whether it's the mall business, the retail business, and you can't invest in your product, you got a problem. We've seen a lot of that. I'm happy to talk to you about that trend, but I'm not going to sit here and comment on specific retailers. I'm not really sure, Jeff, what you're after. Explain it to me.
I guess, are you feeling better now that the retailers are finally talking about specific investments in the stores, pruning some of their portfolios. It feels like finally they're taking some action, Where Craig and I sit, it is a little confusing to figure out, are these winning formulas or not?
Well, I think my concern about how they've overspent in the internet versus the store fleet continues to be a concern for me. I do think they're starting, given that the returns in the online, between free shipping and free returns, is no man's land for them. The price transparency and no service add, value add, hopefully they'll recognize that they should pivot toward the in-store experience. I think that's beginning to happen. I also think, as I've mentioned to you in the past, that there's a number of pure internet retailers that will not be able to really sustain their business model, in my humble opinion, unless they have a physical presence. There's still cleaning out to do. We will suffer from that like anybody else.
At the end of the day, if there's less retail space in the U.S., I expect there to be, so I'm not suggesting that there won't be, we will be the net beneficiary of that because of the vastness of our portfolio. Scale helps, and a big balance sheet helps. We've got $7 billion of capital ready to go to work in whatever form we can do to increase our profitability. We'll weather the storm like we have in the past. We've done some of our best work when it's the foggiest, and that's what we do. That's why we're making $11.50. That's why that's the REIT's highest per share number, and that's why our dividend's grown more than anybody else. I don't know what else to tell you. That's what we do. We haven't backed off our comp NOI.
Do we have to work to get to the 3%? You're darn right, we put that pressure on us each and every year. Yeah, sometimes we don't get to the finish line, but we get pretty damn close most of the time. Again, I have no idea if I'm answering your question, that's what we do.
That helps. Thanks. Craig has just one quick question.
Sure.
Great. Thanks. Just given the strength and shift of some of the value in discount retailers, I'm wondering if we may see the introduction of more value off-price like Marshalls at Del Amo and HomeGoods at Lake Mall.
I think there'll be a little bit more of that, for sure. They do a great job, a lot of the discounters. I think there's a great opportunity for us to bring them into the mall environment. You wouldn't want to do it in every mall environment, but certainly there's a handful of malls that make sense to do that, and I do think that will continue. The reality is, the mall, and again, this is what frustrates us, is that the traffic that we see in the malls is good. Yeah, we can always point out to a mall that's gone out of business or the mall that's got no traffic. Like we can a hotel, like we can a movie company that makes movies and they have a flop.
Doesn't mean all movies are a flop, it just means the one movie they have is a flop. We could talk about network TV and talk about the lineup that all they have, and they have a new show that's a flop. It's conceivable that in our portfolio, we have a couple of flops, but it's immaterial. That's why we gave you those weighted NOI statistics to reinforce that. The reality is that we do think that in some of these properties, we will be able to bring in some of the because I think some of these centers that they're in the strip center might suffer a little bit, and they're going to go where the traffic is, and in most cases, it's the mall environment. Not every one, but in most cases.
Great. Thank you.
Our next question comes from Christy McElroy from Citi. Your line is open.
Hey, it's Michael Bilerman. The good news is "Mall Cop" the movie is not a flop.
The "Mall Cop," the number two wasn't that great, but I think the first one was pretty good.
Yeah. David, strategically over the years, you've been able to adapt to different cycles, right? You were very early on in the consolidation wave, focusing on these big major market malls. You got into the outlet business when you bought Chelsea. You bought Mills, enhancing sort of all the value retail. You sold off or spun off sort of lower quality, weaker malls, lower productivity, smaller assets. You expanded globally, and you've had a rock solid balance sheet. As we think about adapting to this cycle, where is your main focus? Is it adapting and putting more mixed use at your properties, is it maybe going further global? Do you want to focus on other forms of retail and, I don't know, maybe get back into the strip center business?
Is it really focusing on this whole model, the future and the consumer experience and taking ownership of the consumer at your mall? I guess, or is it something completely else? How should we be thinking about your next adaptation to the cycle?
It's a very good question. Let's just talk about our businesses in those segments. Our European and Asian business is actually very strong. That's good news. Our outlet business and Mills business continues to prosper, continues to have very good comp NOI growth. The mall business generally is dealing with a lot of the retailers that we generally understand and know and that are out there in the public. However, the great opportunity, I think, in that business will continue to be reclaiming the department stores and our opportunity to redevelop them that will further expand the mix, whether it's mixed use, whether it's Life Time, whether it's some community-oriented activity. I think that's going to be a big focus for us is how do we take advantage of the department store. I think Sandeep's done a very good job explaining this.
We do probably have too many department stores in the mall business. Instead of looking at it as a concern, given that they pay no rent, we actually think that's a great opportunity for our redeveloping the mall to the next level. Again, I don't think there's any cookie cutter answer, but since they don't provide any income, there is nothing but upside in how we redevelop those, assuming we get the appropriate return on cost. I would certainly say that's a very important phase of what we've got to focus on. I'd say the next very important phase is we do continue to bring technology into the mall environment, just like many retailers are bringing technology, hopefully, to their in-store environment.
I think what that'll do is make the shopping trip more convenient, more productive, and they'll gain more knowledge by going through the mall. We've right now under development in a pretty significant way to deliver product probably realistically a year from now that might facilitate that with also collecting the data that's important to be able to communicate directly with the consumer. I would say those are two areas, then obviously, we're going to be opportunistic. That's just the way we are. There are no current plans to be opportunistic, that's just part of our core culture here is to try and be opportunistic when we can.
Sure. My second question is just, you talked about the narrative that effectively every mall is dead despite the traffic and sales that are going on in your assets. I'm curious if you can share with us some of the tone of your leasing discussions with both the bricks and mortar retailers that are expanding and want to open stores, and how those discussions and negotiations are going with the overarching negative narrative that's out there. Also discuss how those discussions are going with the pure e-tailers that are expanding their bricks and mortar presence, and whether there's a difference, because clearly the narrative is only on one-sided with all these tenants that are shrinking their store base or going bankrupt. Clearly, there has to be some positive to produce the sales and the traffic that you're talking about.
Yeah, I want Rick to answer that. Again, the ones that essentially, if you really cut through it all, the ones that aren't surviving in a tough apparel environment are the ones that were highly levered and had the imprint of private equity on it. Okay, again, I'm going to get a lot of criticism from all my buddies, that's the truth.
Right.
If you look at kind of where that pressure point has been, it's more than just apparel business is bad. It's because, well, they couldn't survive with leverage on it. They paid a special dividend. They bought stock back. They did some financial maneuvering that increased the pressure that wouldn't allow them to deal with a kind of non-robust muddling environment. With that said, I'd like Rick to comment on the rest of it.
I will tell you, Michael, the key, as in all of these things, is the person with the most compelling properties is going to win. All you have to do is visit some of our properties like King of Prussia, like The Galleria, like Sawgrass Mills, like Woodbury, across the four platforms, and you'll see new retailers, both the e-tailers and the international retailers and our existing brands and new designer brands-
All want to take advantage of the space that is becoming available, either because we created it, because we took back space from underproductive retailers, or we consolidated those unproductive retailers into more productive space to free up space. There is still very compelling demand out there across each of the ones that you talked about. Are we fighting about rent? Sure. We've been fighting with our tenants about rent for 40 years. That doesn't change.
Thank you, guys.
Sure. Thanks.
Our next question comes from Steve Sakwa from Evercore ISI. Your line is open.
Thanks. Just a couple of questions. Maybe Rick and David, just to kind of follow that theme on leasing. I know occupancy was flat year-over-year, but you had a little bit of a bigger decline sequentially. I know that there is always a decline sequentially, but it seemed to be a little bit bigger and probably stems from some of the bankruptcies. Can you maybe just talk or help quantify, how much of that space has been re-leased, and do you have any kind of occupancy goals that you can share with us for the end of the year?
Steve, I would just simply say the metrics are the metrics. We focus more on comp NOI growth. Obviously, if you go back in a little bit of 2015, we had more bankruptcies than 2016. This year, we'll probably have more in 2017 than certainly 2016. Some of these are still in a state of flux. I would not want to tell you where our occupancy is, other than to say we haven't backed off the comp NOI number of 3%. Like I said, we're got a lot of work to continue to do. That comment, I would say first quarter in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017. That's just the way we look at our business. That's the number that we're more focused on than sales per square foot, rent spreads, and occupancy.
You put it all in a blender, and it all manifests itself into one number, and that's the number that I care about.
Right. No, I understand that. I think just to the extent that there was maybe a step or step and a half back, and people just want to see the progress moving forward, which obviously will manifest itself in NOI growth. I think if there was just a way to help quantify how much of that's maybe already been put to better lease, might just give some clarity that leasing remains strong.
Well, look, we're making deals. We're moving the pile. If we weren't making deals given the bankruptcies and the store closures that we're dealing with, we couldn't produce the 3% comp NOI number, if we weren't doing new business. That's how I would answer that. Again, we don't look at occupancy the way you might, and I'm not disrespecting how you might look at it. I'm just telling you, the way we run our business is for comp NOI or cash flow growth. If we didn't have any new lease up, given the bankruptcy and store closures that exist in our industry, we wouldn't be able to get to that 3%. I hope that gives you at least some trend as to how we feel about leasing up some of that space.
Yep. Okay. I guess secondly, you've mentioned traffic's strong and it's up where it's measured, and you said it's good. Do you have any sort of stats you could share? Have you done anything sort of technology-wise in the malls to help quantify this? If you have, is that data that you'll be sharing with us over time to perhaps combat some of the other stats?
You know how I feel. I think we have given you plenty of data, okay? The odds of us giving you more data are not great. I will tell you that we don't have traffic counters in every mall, but we have it in a good percentage of our malls, and I stand by that traffic comment. We have parking counters in our outlet business, when you factor in through April, I had it somewhere, but I can't find it. If you had it through April, our traffic overall in because it's important, remember, March, you had Easter of last year. The parking counters in our outlet business is up or I'm sorry, Rick now has the number in front of me, 2%.
That gives you a barometer, when you look at if it was through March in the outlet business, we look at it by region. It's essentially flat, but it's up 2% if you go all the way through Easter, April.
Okay, thanks. I guess just last question, as you think about sort of CapEx and what you need to spend to kind of maintain malls or to keep the cash flow growing, do you get a sense that there may be a higher level of CapEx that's needed to generate that 3% compounded CapEx, do you sense that the returns on the boxes that you may recapture might change, possibly to the downside, as you take these stores back?
I don't think so at all because we're up against very little income against those boxes. It's a function of what you pay for them and what the income is. The last thing we'll do is, I hope, that's not to say we don't make silly decisions here, but we know we can back into what the right number is to buy that box. Like at King of Prussia, we get it for free. It's a lease. The lease ends, I think, in 2020. They're going to pay the rent all the way through it, which is great. We get to redo our plans. Maybe we'll get them out early, but that's all given that lease payment. That's a lot of upside. I think it's possible a deal here or there might be, but that's always been the case.
Steve, as you know, we spent a lot of capital in the portfolio to upgrade the look and feel. We're going to continue to do that. The worst thing that we can do, and this is a comment for everyone, is not invest in our business. That's the worst thing you can do. I've seen it, and I don't care if it's a hotel, an office building, a movie business, the network business, the internet business. If you don't invest in your product, you can't continue to produce returns. That's the nature of corporate America. We're going to continue to invest. I think the returns will be there. I don't think the dynamics of today's current environment have changed that. That's what we see.
Again, if something changes, I think it's a fair question, and if we feel a trend there, we'll start to set expectations differently.
Okay, thanks. That's it from me.
Our next question comes from Paul Morgan from Canaccord. Your line is open.
Hi, good morning.
Good morning.
Just on the buyback, we've talked in the past about kind of the role you see stock buybacks and how you've used in the past with around specific catalysts. Maybe you could just comment on the buyback in the first quarter and, given where your valuation is, how you think about that as a use of your free cash flow relative to redevelopments and other uses.
The good news is we will not crowd out our investment in our product. That's the most important thing you cannot do. We've seen it as an example at the department store level, where stock buybacks have crowded out store investment. We will not let that happen. On the other hand, we have spent a lot of capital in our portfolio. You know kind of what we expect there. Other than, I think the Q1 should continue to give you expectations of what we'll continue to do. Obviously, the price is lower. You do come into a blackout period, that you're all familiar with. That has almost gone, and we think you can do the math. We believe in our business. We believe in our product. We can do both, and we will do both.
This is sort of, you see right now, at least at kind of these levels, there's sort of a role, kind of a recurring role to play for the buyback alongside your other kind of CapEx initiatives. Is that fair?
I think that's a fair assessment.
Okay. Then just kind of secondly, a lot of people kind of have concerns about kind of the outlet industry just because of what seems to be a disproportionate share of kind of the apparel and accessories retailers, which has been a tough segment more broadly. I was wondering, because you lump them together broadly, although I appreciated the traffic comment, if you could talk about maybe whether there's much of a disparity in terms of kind of the momentum there from, like, a same-store NOI perspective, and then maybe if Rick is able to provide some of the retailers who are sort of, kind of taking space that might be coming back from other chains that go liquidating or something like that.
I'm glad you brought that up because we've heard this chatter. Absolutely, unequivocally, the business is strong. It's so far from the chatter, I don't really know how to react, other than we can start breaking out statistics again, and my goodness, we'd like to be viewed in totality about our entity as opposed to a bunch of statistics. The reality is absolutely not. That chatter is inaccurate. The only pressure that we've seen in the outlet business, which we've been consistent in describing, is we have a number of Tourist-oriented centers, and given the strong dollar, we continue to see muted spending because the tourism and all of the psychology of coming to America is different than it was maybe a few months ago. We're dealing with that. If you isolate those, it's absolutely au contraire.
I wanted to show people of all my years of going to Paris, I can speak French. No, that chatter is just wildly false, I don't know what else to tell you.
I was just wondering if Rick can maybe talk about some of the people who are growing in that segment in particular.
I admit you garbled there.
Sorry. I was just seeing if Rick could maybe talk about any of the retailers that are sort of taking space like he's done in the past, but particularly focused on the outlet side.
The answer is I could. In fact, I have a list here of them. I could take up the rest of the call with the names, because David always makes fun of me when I rattle off names, I'll be very limited. Things to bear in mind with our outlet business, we have some of the greatest outlet centers in the world. Literally, we're getting international designer tenants that are opening their first, second, or third outlet store in the world at our properties. We're having the more people that are in bulk, ASICS, Citizen, Scotch & Soda, Marmot. I could go on and on. I literally have a paper in front of me of probably 150 names, and one of the reasons it's so strong is because the occupancy has been so high.
This is the first time we've had even a little inventory that we can accommodate all the people that want to grow. It is just not an issue whatsoever with demand.
I think that the important point is that the value-oriented You can get discounted goods a lot of places, and it's certainly proliferated. To the consumer, having them all together in a nice, pretty, coherent layout, is why consumers will travel to our outlet centers and shop. I will tell you this, the comp NOI growth in our outlet business exceeded the mall business. Okay? I've heard this chatter. I don't know where it's coming from, I'm here to officially refute it.
Great, thanks.
Thanks.
Our next question comes from Caitlin Burrows from Goldman Sachs. Your line is open.
Hi, good morning. You and your retail peers don't report same-store revenue and expense growth, just NOI. I was wondering if you could comment on those two pieces, revenue versus expenses, how they've been trending. It seems like some of your NOI growth may be more attributable to the expense saving side versus revenue growth.
That's incorrect. You see our P&L. You can analyze it. I thought that's your job.
Okay. On the same store NOI, you guys did have a strong first quarter, which was above your full year guidance of 3%. I was just wondering if we should expect a slowdown later in the year, or if you're more just sticking to the previously laid out guidance of 3%.
I think I already answered that question a couple of times. We've reaffirmed our guidance. That's really all that I need to answer on that front.
Okay, just last one on the development pipeline. Mall redevelopments and the ground-up outlets have been a traditional good growth driver. I was just wondering what your outlook is for new outlet supply, and to what extent, also separate from your Seritage JV, you might be able to be proactive with some of your Sears stores.
Well, on the outlet side, we've got a very interesting pipe, I think, in Asia. We've got a very interesting pipe with McArthurGlen. We're hopeful to start a new project in Spain here in the next couple of months. I think the investment community should realize, we have a really strong business outside of the U.S., and it's worth much more than what is on our books. Okay? Put that aside. There's a nice pipe through McArthurGlen. By the way, we just opened a new center in Provence, which we own 90% of, and that's no small feat to accomplish in France. We have our partner, McArthurGlen, to thank for that. We have a very nice pipe in Asia, very nice pipe in France.
We will have one project that will probably start construction in the next couple of months in the U.S., which we'll announce shortly. We've got a couple more that are in the works that probably won't start till 2017. I'm sorry, 2018 for 2019 delivery. We continue to look for opportunities on this. There's nothing more than what we do is plan for potential department store redevelopments. We're working both on sourcing the demand and ultimately trying to get the boxes back. That's an ongoing process that will continue to be, but we think that'll be beneficial to the company in the long run.
Okay. Thank you.
Yep.
Our next question comes from Kevin Kim from SunTrust. Your line is open.
Thank you. Good morning, everyone. I wanted to go back to that CapEx question. You have a lot of great information in your supplemental, but one thing that isn't very clear is how much CapEx, quarter to quarter you're having to pay out to get that 3% or 3.8% same store NOI or those leasing spreads. I was curious, how has that trended over time? You've talked about retailers investing in their stores, but are you incrementally having to find that maybe you have to help them out with that part of the process?
This is Rick. Frankly, the thing I think you're probably referring to is our tenant allowances. If you look, they've been relatively consistent over a very long period of time. We give virtually no allowance on our renewals. We tell you the allowances that we do on a per square foot basis for our new leases. Happily, this quarter it happened to be a little higher because we were able to do a lot of great leasing for some very high impact tenants. It was a little more allowance. As David has said consistently, all that is built into our NOI growth and it is consistent with where we've been over a long period of time.
Nothing on the margin that's changing at all?
No, it moves from quarter to quarter, but no, we don't. You got to think a little bit broader, Kevin. If we were loosey-goosey with our capital, we wouldn't have the best balance sheet in the business with the most firepower. We don't buy up rent. We don't throw capital after tenants that may fail. That doesn't mean we don't make mistakes, but there's just no change in our approach to that, and it will never change. That's why, see, these things are related, right? That's why we have the balance sheet here is because you're right, it is all about capital allocation. It is all about not putting good money in a rabbit hole. We are not perfect there. We make mistakes. We do take chances every once in a while, but there's just no trend there.
It's just not what we do as a company. I would have hoped that, seeing us operate for this long period of time, you would understand that.
Okay. Just a second question, going back to your comments about technology. From a consumer standpoint, you might not like this, but when I go into a Westfield Mall or a Simon Mall, I think from a consumer's perspective, they can't really tell the difference, right? Why I say that is because some of the technology improvements you're trying to make, at the end of the day, do you think the mall companies have to be more collaborative to really make a big change in what they're offering at the malls?
Well, first of all, I view that as a compliment. I think Westfield's a very good operator. That's number one. Number two is, look, it is potential we could collaborate. We do that currently. For instance, Deliv is a consortium of three or four mall owners. The mall owners talk on the technology front all the time. We talk to Westfield, we talk to General Growth, we talk to Macerich, Taubman, et cetera, when there's a new product that we think because at the end of the day, we really don't compete all that much locally. The fascinating thing about our business is, yeah, we have skirmishes here and there, but we don't have a lot of overlap with the top operators, in markets of all that significance. There is the potential to collaborate. We're more than happy to.
I do think there's potential to do that, and we have done it, and there'll certainly be more potential as we move forward.
Okay. Thank you.
Sure.
Our next question comes from Vincent Chao from Deutsche Bank. Your line is open.
Good morning, everyone. I just wanted to ask a question. It seems like the bankruptcies that have been filed so far have come fairly late in the quarter. I was just curious if you had, relative to the 120 or 130 basis points quarter-over-quarter decline in the ending occupancy, do you have a sense of what the average occupancy was for the first quarter?
No.
No. Okay. Is it fair to say that there would be some lingering impact from what's already happened, though, in the second quarter?
Yeah. We'll look at it. It's just we're not obsessed with it, okay? We'll look at it, and maybe Tom will give you the number, maybe he won't. I don't know. Okay?
Okay. Earlier you had mentioned that the department stores are a big opportunity that you're looking at, just curious, in the near term, you've got three anchor expiries. I think they're all, just looking at the average size, look like department stores. Curious if there's an opportunity with those three or how those discussions are going.
Basically, those are all subject options, and we expect them to be exercised.
Got it. Okay. Last question, just in terms of the comments you've made today and in the past about retailers investing in their stores more maybe than the omni-channel or the e-commerce side of their businesses. Can you just maybe share a little bit, I know we've asked this question in the past too, but just in terms of the Aéropostale in-store investments, some of what you're doing on that front.
Yeah, they did a cleanup to restart the brand during when it went from the liquidator to the new owners. It wasn't really material, but it was a good beginning to reintroduce the brand to the consumer. Essentially, most of the stores were touched, some more than others.
I guess, are there further plans for other in-store investments to sort of improve the environment?
Yeah, look, I think that's probably not this year, but we evaluate it all the time. We're not afraid to invest in it. To go through bankruptcy is somewhat traumatic, okay? Again, we weren't in charge of liquidating it in the period. Again, I don't want to get into all the technicalities of it, but we just took it over January, I don't know, one or two or six or whatever the date was. This year is just to stabilize it. We did clean up to reintroduce it. We are sourcing new product. We are going through all that, but it's the first year.
Okay. Thank you.
Yep.
Our next question comes from Haendel St. Juste from Mizuho. Your line is open.
Good morning. Thanks for taking my question. First question, can you share what the average price of the stock you repurchased during the first quarter was?
It'll be in our Q.
Okay.
I think it was around $174.
Got it. Okay. We've seen you do a few non-retail development to some of your top urban properties, the hotel at Phipps Plaza, hotel and luxury tower at Galleria. I guess my question is, what's your appetite for more of these office, apartment, or hotel type of projects? What role do you envision them playing in your platform going forward? Can you give us a broad sense of what type of returns you look for?
We're going to do returns that create value for our shareholders. That's number 1. Number 2, I don't think we'll do much office, frankly, other than we have built office on top of a few of our new developments, like at Domain and Clearfork, just to name a few. We think that's a nice mix, but I'd sell the land or do something probably before I built an office tower. I think we have a very nice pipeline for hotels and multi-family throughout the portfolio. We're talking to a lot of people. We got some great plans. I think that will be a growth vehicle for the company going forward.
This sounds like you bring in some partners for that.
Yeah. Yes and no. We might. We'll certainly bring in operators. We could bring in other developers. It depends on the market, and again, there's no one set answer, but the reality is, we could do both, and we have done both.
Okay. One or two more on redev, please. First, can you talk about the lease up in early feel for some of your recent redevs and expansions, like at Roosevelt Field, Del Amo, King of Prussia. I know it's a bit early in some of these cases, and you have a strong track record, I'm wondering how pleased are you with the early read and trends from these projects, and have your return expectations changed at all versus your underwriting?
Not really. It always takes time to lease up new expanded space. Most good developments do not have 100% leased to start. You always kind of want to calibrate or you want to wait for the retailer. I'd say we're pretty much on plan on those.
Okay. Your upcoming projects, Norfolk, some of the others, any change in redev expectations there, return expectations, or are we still thinking similarly, 7%-8%?
Well, Norfolk will do better than that. No, it's all in our 8-K, and you can see nothing really changed in terms of our returns.
Okay. Thank you.
Sure.
Our next question comes from Michael Mueller from JPMorgan. Your line is open.
Oh, hi. I was wondering, can you talk a little bit about the 2017 leasing plan and how far through it you are? Also on the development, redevelopment spend front, are you still expecting about $1 billion a year in 2017 and 2018?
Yes, on the $1 billion a year. Rick, you want to-
Yeah, on the renewals in 2017, we're probably about 100 basis points ahead of where we were last year at this time. We're already starting on 2018. We're probably about 20% through our 2018 renewals, which is ahead of where we were in 2017 this time last year. We're very focused on that and making good progress against it.
Great. That was it. Thank you.
Sure.
Our next question comes from Carol Kemple from Hilliard Lyons. Your line is open.
Good morning.
Good morning.
On the income statement, the income from unconsolidated entities, it was down compared to last year. What were the moving parts in that?
Primarily, that's where you see the arrow-
Okay
losses. Good question, though.
Okay. Thank you.
Sure.
Our next question comes from Jeff Donnelly from Wells Fargo. Your line is open.
Good morning, guys. Loved the French earlier, David, though I think the pronunciation could use some work.
Among other things, believe me.
I can't top it.
I can barely speak English, okay, let alone French.
A few questions. I guess, just first, I was curious, earlier this month, David Contis announced his plans to leave. I was just curious how his departure affected succession planning for leadership roles at Simon. Does that cause you to rethink some things?
No. David left for family reasons. There's no impact on succession planning there. We have a great strength in our bench and our development team, Kathleen Shields, John Phipps. We just hired a real quality veteran that was at LIXIL running that real estate, Mike Nevins. We have a very good bench. Really not much to say beyond that. No worries on that front.
Maybe for Rick, I recognize maybe it's early for some of this, but in situations where you guys have either had anchor closures or even a competing mall in the market that you compete with has closed, do you guys have any hard or anecdotal data on, I guess I would call it, the sales transfer that you might have picked up, either the other anchors in the same mall or your mall relative to a closed competing mall? I'm just curious how that shift might have happened, because usually retail sales aren't destroyed. They sort of move elsewhere.
Anecdotally, what we have heard from our department stores is that they do gain market share both when they close their stores in the market, and frankly, that was the point that David alluded to earlier when he said in the long run, this retail consolidation is going to benefit us because those sales that are in the market, we're going to get our share of them. Also, we have heard from our department stores that when a store closes in the mall, those shoppers, for the most part, stay in the mall, and those sales do get redistributed among the other department stores that are in the property.
The most interesting thing on that front is that if they do close a store or they leave a market, those internet sales that are in that market go bye-bye. Just to broaden your question in terms of the answer, that's what's interesting. When they leave a market, those internet sales in that market tend to go bye-bye.
What's your take on the concept of grocers returning to the mall? One of your competitors just paid a little bit of lip service to that, and I'm just curious what you guys think about that dynamic since it's been, frankly, a very long time since the mall industry has had grocers. I think I last saw them in the Blues Brothers movie or something.
Well, it's like anything else. There's certainly opportunities, and when there are opportunities, we take advantage of it. We added Wegmans at Montgomery Mall. We've added Fresh Market at The Falls. We're literally in the process of adding a supermarket right now at College Mall, where we demolished the Sears. Where it fits the market, they're certainly a great use. You got to be able to accommodate their physical constraints, and it also has to make sense economically. We're actively talking to them, and hopefully we'll have others that are going to find their way into our properties as we get space available.
Yeah. I think it's a good move. We'll certainly pursue it. We think it's interesting. We have done it in the past. We'll continue to do it.
Just a last question, maybe a little involved as it relates to occupancy costs. The last several years, Apple and other retailers have been a really pronounced influence on mall sales. Some people have estimated that adding an Apple to a mall or a Tesla, for example, can boost overall sales on average about $100 a sq ft. That 10%, 15%, 20% increase in mall sales sort of implies that the typical in-line retailer's occupancy costs might actually be 15%-20% higher than the mall average that we can kind of see.
I guess my concern is just, is it that the occupancy costs for a typical retailer might be at a big premium, at a time when their margins are under a lot of pressure, I guess, the question here is, do you really think occupancy costs in the next few years can continue to hold steady, or do you think we're going to see some need for them to roll down just because maybe they've risen to a point where it's just very difficult for them to afford it given where their profits are?
Well, I think it's a retailer by retailer case. That's certainly the case for some retailers, without question. It's a case by case. The one thing with respect to your question, remember, our sales, we have all the outlets in it, so the dramatic impact is, from a highly productive tenant, it's not dramatic. Okay? That's not to say, though, certainly there are some retailers that, because their productivity is so low that they can't afford the rent. That's what's moved our number, is that those guys go out. We find somebody else to replace them. If we could not replace retailers, it would be an issue. We can. We have. That's what we do. In Europe, as another example, the occupancy costs there are much greater for in-line tenants, yet they've all found the ability to become more profitable.
Again, I think certainly that's the case for some retailers. When that happens, we tend to replace them. Again, when you think about the impact on some of those higher productivity tenants, just put us in perspective, because we meld in the outlet business, that doesn't make it as not that it doesn't have an impact, but it's not dramatic.
Okay. Understood. Thanks, guys.
Yeah, no worries.
Our next question comes from Nick Yulico from UBS. Your line is open.
Thanks. I just wanted to go back to the redevelopment issue, in particular when you're redeveloping an anchor box. Can you give us some of the math behind your 7% target return? For example, is there a good rule of thumb on the cost to reposition the space on a per square foot basis?
There's really no rule of thumb. Every one of these development opportunities is evaluated on its own, and the returns are going to be a function of how you redeploy the space. If it's all small shops, the returns could be considerably higher. If you're substituting a single user into the existing box, the returns could be a little lower, but the capital expenditure will be lower. It's a case-by-case situation, and frankly, as you can see, when you look at our reporting, we've been very active in bringing anchors to our property, and that's been going on for years, and it's going to hopefully only accelerate as we get control of more of the space.
Okay. I guess if you are replacing an anchor with a Dick's, for example, on a per square foot build, is it $200 a foot? Is it $300 a foot? Any perspective you can give us on that?
No, we don't go into the specifics. That's something we disclose our capital in our schedules, but we're not going to go into specifics of an individual redevelopment project.
Okay. I guess the reason I ask is because there's obviously a lot of questions about where are rents going, where is occupancy going? I think one of the other concerns from investors is the amount of capital going into malls and how much of it is really a return on investment or rather just maintenance capital.
Look, I encourage those investors to look at our financial statements. Okay?
Okay.
Instead of the rhetoric, instead of the narrative, just look at our financial statements. Okay? Look at our return on equity. I don't know what else to tell you that. Now, I know you're trying to get ahead of a trend, but we disclose a tremendous amount of information, and I would just encourage you to look at our financial statements.
All right. Thanks. Appreciate it.
Sure.
Our next question comes from Richard Hill from Morgan Stanley. Your line is open.
Hey, David. Just had a quick question about Aéropostale and sort of going back to the operating losses. Appreciate why 1Q is seasonally a low income quarter. Just thinking about Aéropostale specifically, the last time they publicly reported, it looks like they posted operating losses in every quarter, with first quarter and second quarter obviously being the worst. Just in terms of modeling purposes, I was wondering if you could maybe give any sort of frame of reference for how much the operating losses compare to 2015, and if we should think about that $0.03 as consistent for 2Q and then coming back down. How should we think about that from a modeling purpose?
We don't give quarterly guidance, number one. We think that's a waste of everybody's intellectual curiosity. There's just no way to compare it to 2015 and 2016 because the fleet was 1,000 stores and now it's 500. We've done a dramatic job on sourcing. We've done a dramatic job on overhead, and again, we're just building the inventory back up because of the liquidation. It's really an apple and an orange. The reality is, just to put it in perspective, $0.03 on $2.74 is, what percent is that? Somebody do it. 1%. It is what it is. Our cash investment between OpCo and PropCo was in the $33 million. Again, let's just put all of this stuff in perspective. Again, generally, it'll probably continue to have operating losses until the fourth quarter.
I'm not going to give you per share stuff because we just don't do that. Per quarter stuff, I should say.
Yeah, got it. I wasn't looking for you to give guidance there. I appreciate you don't give quarterly guidance. Was just looking for some frame of reference that.
Yeah
Operating losses 50%.
Rich, I know you're smart, but you can't go back to 2015 and 2016, because that company is completely different than it is today.
Yeah, exactly. That was sort of, I guess, the point of my question is that, is it 50% of the losses that it was in 2015?
Yeah
or not.
Well, fact of the matter is, I don't even look at 2015 or 2016. I'm looking at what they're doing going forward.
Okay.
No worries.
Thank you. I appreciate it.
My pleasure.
Our next question comes from Linda Tsai from Barclays. Your line is open.
Thanks for taking my call. Maybe to alleviate some of the fears here, in terms of the store closures that have occurred since the 4Q call, can you just give us a sense of percentage of ABR those stores would represent collectively in your portfolio?
I don't understand it. Can you restate the question, please?
Sure. In terms of the store closures that have occurred since the 4Q call, the incremental ones, what % of ABR does that represent in your portfolio?
That's not how we would look at it. The answer is, I don't know.
Oh, like annualized rent.
Oh. Look, the way we look at it is, we've got our total revenues for our properties, not our share, but our total is over $6 billion. Right? It's immaterial when you look at it on that perspective.
Okay, thanks. You've touched on this topic already, but maybe just to ask it a little differently. When an anchor goes dark, what's your thought process that goes on to decide the best and highest use of that space? To the extent that you're getting these anchors back faster and sooner than you expected, are you thinking about these redevelopments differently in aggregate, maybe from a merchandising perspective than when there were fewer happening across the retail landscape?
Well, we're always thinking about things differently, I would say. In this case, the reality is we don't have any empty boxes, okay? Now, I guess King of Prussia is going to be empty, and that'll be our one and only empty box. I guess, fair to say that we are thinking about that a little bit differently, and that given the dramatic changes that the malls had in that particular area of the wing, with Sears going out and Primark and Dick's taking that over, and the interest in mixed use. We'll probably go more mixed use, more big box. Since we added all the small shops connecting the two malls, yeah, you could say maybe our thinking's different. I would tell you that hopefully it evolves every day. Maybe on the margin.
I would also say to you that we are analyzing virtually every box that we have, and we keep a running strategic assessment of who is not in each of our properties that would be appropriate to be added to that property, including the other mixed-use potential, because it's a market specific analysis. We are anticipating potential opportunities to recover these boxes, we are not going to be caught flat-footed when the opportunity presents itself.
Thanks.
Thank you.
Our next question comes from Floris van Dijkum from Vontobel. Your line is open.
Great. Thanks, guys. I have a question. David, this sort of relates to your comment about your private equity friends employing leverage. What are your plans for your Hudson's Bay joint venture, and how do you see that business evolving?
Floris, I don't know why you would relate those two. Those guys are real operators, and I think they're evolving to be best in breed, so in the department store area. Look, I think that we've got so much optionality with that joint venture. Right now it's business as usual. There's optionality to take it to another level as the landscape changes. Right now, it's business as usual. We're looking at selective boxes to redevelop within the existing portfolio. They continue to improve upon their fleet, putting money back into the physical real estate, and I continue to be impressed with how they operate their stores.
Okay. Then a question, I guess, on your international properties. I know you talk your leasing spreads you usually cite are for the U.S. I'm just curious, with the 99.8% occupancy in your international portfolio, what kind of leasing spreads are you getting there? Are you really able to push rent?
Yeah, very much so. A lot of it's new, so we don't have a lot of rollover yet. The answer is yes. It's a good question. Again, we kind of look at the cash flow growth, maybe there's some numbers there that we can give to you next time.
Great. Thanks.
Sure.
Our next question comes from David Harris from Uniplan. Your line is open.
Hi. Good morning. I'm 20 years plus working on my American, hopefully you can understand my question, David.
Well, you only too loudly and clearly, okay? We understand everything you say.
Okay. Yesterday the administration put forward plans to reduce the corporate taxes down to 15%. Now, this is not a new idea, and who knows whether they'd end up at that number. It does look, though, there is a move to lower corporate taxes. Have you given any thought to a level at which it might make sense to become a C-corp?
Again, a very good question. I thought you were going to bring up the game yesterday. Tottenham, and we were on a good streak until yesterday.
Yeah, I know. Well, yeah. I think you'll make it, but that's an aside there.
All right. You sound a little depressed on the call, but anyway, it's a good question. The reality is, it's worthy. Doubt it we would change, let's see what the number is and, we do have a lot of depreciation in our business.
That might go away.
Yeah.
That might go away.
Well, I don't think so. What I understand is, bonus depreciation's part of the thing to go back and forth. There's no reason to model it right now because, God knows what's going to happen. It's interesting, our taxable income is $7, thereabouts. At 15% without accelerating depreciation, I'm not sure why I would suddenly want to pay that to Uncle Sam. If they change something with the depreciation rules, maybe it's of interest, but I would rather give that 15%, I'd rather give that money to our shareholders as opposed to the government.
I guess the flexibility that would come from being a C-corp would be a potential, setting aside what rate it is and do the apple math, the flexibility would be the goal here.
Yeah. I agree, other than, we do have taxable income of $7. Which again, if our FFO per share is $11.50 in the mid-range, $7, that's not too shabby.
Right.
Maybe. They'd have to change the depreciation rules to really get us to think about it, I think.
Okay. Good luck for the rest of the season.
Thank you.
Bye.
We have a question from Christy McElroy from Citi. Your line is open.
Hey, it's Michael Bilerman again. David, I'm curious, you've talked a lot about the narrative, and the negative rhetoric that's out there in the popular press. I'm curious if you had an open invite to these journalists to come to something like King of Prussia or Del Amo or Aventura, where I don't know if they can find a parking spot at 2:00 on a Saturday, but bring them to those assets.
Well, I don't know. I'd rather bring my shareholders there. I think I'd rather bring shareholders wherever they'd like to go. We're happy to tour them, explain the business. We certainly do it with sell-side and so on. We communicate all the time with our investors and shareholders. I think that's time better spent, and time is better spent running our business than trying to get the narrative changed. I'm only expressing that point of view to anybody that's concerned about the narrative that's on this call, at least sees the other side of the story. That's all I'm interested in expressing on this call.
Yeah.
Most importantly, that's evidenced by our numbers. I'd rather spend more time with our shareholders and our teams. I just don't see us being successful in changing it right now.
One of the things you talked about in your shareholders letter was that, we have too much retail per capita in the U.S.
Yeah.
Some become obsolete, though we have little exposure to this, the industry will feel the pain, this feeds the overall narrative. I guess, what is your expectation of retail that needs to come out? Is that shifting at all?
Well, it's interesting. Look, I can't sit here and predict what per capita we should have. That's way above my ability to forecast or even have an opinion on. I will tell you this. Certain malls are actually that maybe shouldn't have been built or maybe in a right trade area, or actually they last a lot longer than people think. So I don't know. I have no idea. All I worry about is what our portfolio can produce in terms of cash flow, I don't really have an opinion on kind of what the right U.S. number should be. Just don't have an opinion.
Okay. All right. David, thanks for the time.
Thank you. All right. Thanks. Sorry this ran a little longer. Appreciate all your questions. We do like giving everybody a chance that's interested to ask a question. Given there's no more, we can go on to the rest of our day. Take care.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.