Good day, ladies and gentlemen, and welcome to the Q3 2015 Simon Property Group, Inc. Earnings Conference Call. My name is Julie, and I will be your operator for today. At this time, all participants are in listen only mode. We will conduct a question and answer session towards the end of the conference.
As a reminder, this call is being recorded for replay purposes. And now I'd like to turn the call over to Tom Ward, VP of Investor Relations. Please proceed, sir.
Thank you, Julie. Good morning, and thank you for joining us today. Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer Andy Juster, Chief Financial Officer and Steve Broadwater, Chief Accounting Officer. Before we begin, a quick reminder that statements made during this call may be deemed forward looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors.
We refer you to today's press release and our SEC filings for a detailed discussion of 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 ks filing. Both the press release and the supplemental information are available on our IR website at investors. Simon.com.
For our prepared remarks, I'm pleased to introduce David Simon.
Good morning. We had a productive quarter. We opened, started and completed several new projects. We closed our joint venture with HBC, including the acquisition of certain Calf Hop department store, which will serve as another avenue of growth for us. And most importantly, we continue to produce strong operating and financial performance.
Results in the quarter were highlighted by FFO of $2.54 per share, which exceeded the first call consensus by 0 point 0 $7 These results were achieved even with the negative impact of $0.04 from the quarter compared to the prior year quarter due to the strong dollar. On a comparable basis, excluding the loss on the extinguishment of debt in the prior year period, FFO per diluted share increased 12.9 percent or $0.29 year over year. Key metrics: occupancy was 96 point 1%. Leasing activity remains healthy. The malls and outlets recorded releasing spreads of $11 per square foot, an increase of 18.4%.
Comp NOI increased 4.3% in the Q3 of 2015 and increased 3.8% year to date, keeping us on track for full year guidance of 4% comp NOI growth. This is on top of our industry leading growth of more than 5% in 2014. As a reminder, we do not include lease settlement income and comp NOI disclosure or new transaction. We also do not include the impact of recently redeveloped or expanded centers. Total sales across the portfolio increased 1.8% for the trailing 12 months, even with the loss of bankrupt tenants.
On a comparable basis, the sales per square foot increase for the 12 months ended September 30 was 2.7% positive. They were strong in the mall but affected in the outlet business due to the strong dollar has had on sales activity from the international tourists in properties along the Canadian Mexican border as well as traditional tourist markets. The end of the Q3, redevelopment and expansion projects were ongoing at 30 properties across all three of our platforms with a total committed spend of $1,700,000,000 During the quarter, we opened significant expansion at 2 of the country's most productive outlet centers, San Francisco Premium Outlet Centers and Chicago Premium Outlets. Following the expansion, the outlets Chicago Premium Outlets. Following the expansion, the outlets in Chicago and San Francisco are the largest, respectively, in Illinois and California.
We recently opened the fashion wing at Del Amo. The wing includes a new Nordstrom and more than 100 exceptional brands, many of them exclusive to the trade area. This transformation we have completed at Del Amo is just another example of how we continue to invest in our proven assets to enrich the shoppers' experience and enhance the value of our real estate. We started construction on several new strategic projects during the quarter, including significant redevelopments at The Shops at Riverside, the Westchester, and our progress is excellent with our Sears boxes at Seritage. As we move forward, construction continues on major redevelopment and expansion projects, some of our most productive properties, including Roosevelt Field, the Galleria and Houston Stanford Shopping Center, the King of Prussia Mall, Sawgrass Mills and Woodberry Commons.
All of these projects, we expect to be completed over the next 12 months. In terms of new development, we opened 2 new in the quarter, Vancouver and Gloucester. We also opened Tucson Premium Outlets October 1, and we're opening Tampa on Thursday of this week. During the quarter, we started construction on a new premium outlet center in Clarksburg, which is projected to open October 2016. We are also with our partner, McArthur Glenn, we started construction on a new outlet in Provence, France, which is scheduled to open in March of 2017, which will be the only designer outlet in the south of France.
And our share of investment of new outlets and full price is currently $725,000,000 not including the recently completed Gloucester and Vancouver. And let's talk quickly about the balance sheet activities. We issued $1,100,000,000 of new notes with a weighted average duration of 7.8 years and an average coupon of 3 0.05%. We completed several secured placements during the quarter as well as the U. S.
And German loan facility financings for our joint venture with HBC. Our current liquidity between the revolvers and cash on hand approximately $6,000,000,000 Our industry leading balance sheet continues to differentiate us in a very positive manner. We exercised caution during the Q3 with respect to our common stock repurchase program and did not repurchase any stock during the period due to the increased market volatility and the dislocation in the debt markets. We remain committed to our buyback efforts, of course, subject to market conditions. In addition, we announced our dividend of $1.60 per share for this quarter.
That's an increase of 23% year over year. In fact, that's the 4th consecutive quarter that we've increased our dividend. We will pay $6.05 in 2015, and that's an increase of 17.5% compared to $5.15 of last year. So with all that said, no one is as active as we are in terms of redevelopment and new development. And I'm pleased, based upon the performance to date, to once again raise our guidance of 20.15 of $10.10 to 10.15 our original FFO guidance of $9.60 to $9.70 per share or approximately $0.48 higher from the respective midpoints.
We're now ready for questions.
The first question comes from the line of Mike Bilerman from Citi. Please go ahead, sir. You're live into the call.
Hey, it's Michael Bilerman here with Christy McElroy. David, your comment about the stock buyback being, I guess, a volatile stock market and some uncertainties in the debt markets, isn't that exactly the time where you should be exercising your fortress balance sheet and significant cash proceeds to be able to buy the stock? I know hindsight is 20.20, watching the stock go up $27 but I'm just curious about the mentality at that point in time about not being aggressive at that point.
Well, Michael, I think stock buybacks in terms of the market place reaction to them maybe overstated. What I'm most interested in at this company is growing our earnings and our dividend and maintaining our balance sheet, proving our properties and enhancing our relationship. So I don't look at it at a quarter by quarter basis. We are more focused on growing our earnings per share and our dividend. And the fact is that in August, the market was very volatile.
As you know, the debt markets gapped pretty significantly. We chose for 1 quarter to be cautious. I have no regrets about that because our number one priority is to grow earnings and our dividends. And that to me is more important. And I think that's what the market should value more importantly than what one's buyback activity maybe from 1 quarter to the next.
We remain committed to it. We're going to be opportunistic about that because we continue to believe and I'm terrible at reading from the script. I can barely get the words out. But as you know, our activity in redevelopment and new development is not hypothetical. It is ongoing.
And I think prudence in that category of the buyback is appropriate. And again, I think our number one priority is earnings growth and therefore dividend growth. And we'll buy stock back when we feel like it's a real opportunistic time.
Great. And Christy has a question as well. Sure.
David, just in thinking about the Simon Venture Group stuff and we appreciate the in-depth look at that business earlier this month. Beyond just sort of the small financial investment you've made, what do you view as the primary benefits of this business to Simon over the longer term as consumers shopping habits continue to evolve? And maybe you can sort of give us a sense for how big you think that your investment in this business could reach over time?
Well, let me just talk about what I think the goal is. Ultimately, it's to help connect with the consumer. The mall business historically has always felt like the our job was to get the box leased to the right retailers and let the retailers do most of the connecting and driving most of the traffic. Well, I think the industry has evolved where we've got to become the driver of traffic. And we've got to connect with consumers.
So what I'm looking for in that those investment in that connection with technology is how do I connect with the consumer to drive traffic and make their shopping trip more enjoyable or more effective? 2, how do I help the retailer do that as well? And then maybe 3rd, is there some new concept or new retailer that ultimately can proliferate our portfolio through these kind of connections. And if we can accomplish those 2 or 3 goals, I think we will have succeeded. And it's all about trying to take the mall box making it a smart connected box to help our retailers and the property owner connect with the consumer, so that their trip is better, more efficient and more productive, which we think will lead to sales growth.
So that's the goal. We may do a little bit here and there that's a little far afield like funding a new retail or restaurant concept because we think maybe that has potential down the road. And in terms of size, we're not going to get carried away, but it's really hard to pinpoint right now exactly how big that can be. But you have a sense of where kind of we'll ultimately be in the mid-20s by the end of this year. Maybe we'll do another type of investment like that next year.
It wouldn't shock me if we're in the 50 plus range by the end of next year, but that's just a swag.
Great. It's interesting stuff. Thanks.
Thank you.
Thank you for your question. We do have another question,
just thinking about the bumps throughout the year, David, what exceeded your expectations? And how are you thinking about the budgeting process for 2016? I guess, can you compare year over year your mindset?
Well, from I think what's interesting to put in perspective, first of all, is that as you look at our earnings growth, we have had an increase in lease settlement income, but we've also had the negative of the currency negative from our foreign operations. If you put the 2 together over $0.14 we've actually had a negative $0.05 variance. So the increase in lease settlement income from the reduction in earnings that we've taken from our foreign investments due to the strong dollar, net net year to date has been a negative 0.05 dollars So you have to put that in perspective. We've had good rental growth, good leasing spreads. We obviously had a lot more bankruptcies in 2015 than we did in 2014.
And the other impact we've had on the negative side is that we've lost certain amount of percentage rent from the outlet business because of the fact that the strong dollar has also hurt tourism shopping. And that we've seen that impacted more in the outlet business, the outlet tourist centers than we had in the mall business. The mall comp sales have been better than our expectations and are leading the portfolio in terms of that. So the fact is we always though year in and year out, that's what makes us a little bit unique. We always have some positives.
We always have some negatives. And we somehow manage to hit our numbers, exceed our numbers, produce very strong industry leading results. I'd also say to you, as we look into next year, I mean, the key focus for us, frankly, is we'll have anniversaried the stronger dollar. So that will not be the negative it was this year. And the big focus obviously is going to be leasing up the bankrupt tenants.
We're probably 60% to 70% on our way there. Our total lost square footage is 1,000,000,000 I'm sorry, 1,300,000 dollars So we've got our work cut out. But we've seen this movie before. The good news is we have quality real estate that allows us to do it, and we have other levers to continue to have industry leading comp growth. And I think the big exciting thing that we've got in 'sixteen, which won't show up in our numbers, is all of the major redevelopment that we've done between King of Prussia, Roosevelt Field, Stanford.
You I want Craig to go see Del Amo. It's unbelievable what we started there. Of course, we're still finishing it. It's a big complicated projects, but we got Woodberry Common coming on board. We've got the extension of Sawgrass Colonnade, new development, etcetera, that is going to be really terrific to open up in the latter half of twenty sixteen, which positions us 'seventeen.
The model is reinvest, generate excess cash flow, pay higher dividends. And I should, of course, remind you that our dividend in 'eight was $3 and actually in 'eight, I think it was 2 in 'nine, it was $2.70 At 6.0 $5 today. We'll have significant growth in next year as well. But we got to show up and we got to go to work every day. All
right. Thank you. That's helpful. Good timing on this. Yes.
I hope it answered your question, but I'm not but we've got work to do. And the one thing about comp NOI, if you look at 9%, I'm sorry, if you look at 13%, you look at 13%, we had, I don't know, 5% what we have guys, 5%. 2014%, we had 5%. This year, we're going to have 4%. So we're building it off a pretty strong base.
And we didn't have any down years of nonperformance to build it off of, right? So it's great to build it off a base if you had nonperformance, but we haven't had that, frankly. And in the Great Recession, our comp NOI was relatively flat, which was industry leading as well.
No, it's very helpful. Thank you. And good timing on the Del Amo because I know Craig has put in a request to visit it.
Come on down.
Great. And then my only my one other question was just on the your previous comments on the redevelopment pipeline. We believe you've mentioned through 2017. Are you at the point where you think that pipeline could continue $1,000,000,000 plus beyond 2017? Are we correct on that?
Yes. I feel pretty good about that, yes.
Beyond 17 or not yet?
Yes. No, no, no.
Beyond. But
no rest for the weary. So this morning, we're going through our budget cycle now, which is a lot of fun. But this morning, we going through our capital plan for 2016, 2017 2018. And we don't see it abating. It's actually in 2017, it will be higher, probably around 1,500,000,000 dollars and $18,000,000 in that range.
And the big unknown is how fast the Seritage things happen. We're not it's a joint venture. So it's not just a question of how fast we can go, but also how fast Seritage can go and how fast Sears can go, which is clearly we're trying to influence, but we don't have complete control in that. But we certainly have a lot on the drawing board to do
there. We do have another question. It comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead. You're live into the call.
Hi, good morning.
Good morning.
Earlier this year, mall REITs were of course impacted across the board by retailer bankruptcies. But your same center occupancy was down 80 basis points this quarter, which was actually more than the first and second, which seems surprising. So I was just wondering if you could talk about what drove that year over year decline in occupancy to remain in the 3rd quarter and how you expect it to trend going forward?
Well, we had more bankruptcies in the 3rd quarter. So Jones went out just more bankruptcies. And we've also opened up a few centers, which had some decrease. We don't we just so people understand, we don't in our statistics, in our statistics, we put in new centers the minute they're in terms of occupancy or new expanded centers. They're not in our comps, NOI growth, but they're in our sales per square foot and they're in our occupancy.
So part of that decrease was also that we added some new centers and some new expanded centers, which actually drove our occupancy down about 20 bps as well.
Got it. And then like you were mentioning before, you guys have had consistent pretty strong same store NOI growth. But do you think then this creates some easy occupancy comps for 2016 that should be able to help you even more?
Nothing is easy. You've seen my gray hair recently. Nothing is easy. Now I will well, I won't say anything about gold. We did find we did read this retail report.
We found your list of 100 malls curious. So I assume the real estate folks didn't have much to do with that, but we're happy to help you.
It was our retail team that put it together. Right.
And you quoted traffic statistics, which I'd encourage you to read the footnotes from the from your source.
Will do. Thank you.
Thank you. Happy to help.
Thank you for your question. The next question comes from the line of Paul Morgan from Canaccord. Please go ahead.
Hi, good morning. Just on the sales trend, I mean, could you talk a little bit about it? I mean, whether and to what extent the tourist markets were a drag due to the dollar or maybe looking at any differences between the mall and the premium outlet portfolio?
Well, we're not going to run from this. We're just going to tell you reality. We have unbelievable tourist centers in our outlet business, Orlando, Woodbury, throughout Las Vegas. And those generate a lot of tourism dollars. And the tourists because of the strong dollar was quiet.
I mean, the high end luxury retail market in, say, New York City and Miami has been hurt as well. And we saw that have an usually, it has very little impact. But we saw that a little bit more in the outlet business and very little in the mall business. We think it's more or less temporary. These are great assets, has no impact on retail demand leasing the space at and comp NOI growth.
But that's why the sales metrics are a bigger reaction from you than they are from me. But we tell like it is. So that had an impact on our retail sales per square foot, but we don't think it's going to have an impact on our ability to continue to grow comp NOI growth.
Okay. That gets
to my other question, I guess, which is just if you look at the public retailers, a lot of them, at least their stocks have gotten hit pretty hard over the past several months. And as we head into the holidays, I mean, how as you talk to them, engage with them about they're open to buys for next year, I mean, how is their sentiment? Has it been shifting at all? Is it is this just kind of sort of the shifts in market share between different retailers? Or is there anything more kind of systematic in terms of maybe how they're approaching their growth over the next year or 2?
I'd say this, Paul, it's retail dependent, but they are the better retailers are dealing with the stronger dollar, which has a short term impact on them. And second, the consumer look, the fact is our GDP growth is anemic. I mean, just from the we are growing our general economy at 2% below. I think retail can't avoid that fact. The good news is we outperformed that because we cater to generally the better consumer.
And what I think we've seen from the better consumer this year a little bit move toward, which happens in cycles, a little bit more toward durable goods than nondurable goods, which has the impact of making kind of a flattish comp sales growth increase. But like I said, the mall business, we had very strong comp NOI I'm sorry, comp sale retail sales growth this year and which was offset, as I said, only by the tourist centers in the outlet business. So net net, we're up 2.7. But if I isolated just the mall, we'd be up much higher than that. And that is a testament to even though in anemic GDP growth, the better consumer is spending even though there's been a significant increase in durable good purchases.
And but retail right now is generally is challenging. But we're producing results, and we intend to continue to do that.
I mean, would you say there's it kind of hasn't translated into a meaningful shift in the appetite for space in your centers as people talk about next year?
Not really. I think the opportunity to grow their business in good real estate for the better retailers is strong, and I don't see the current environment affecting that.
The next comes from Ross Dawson from UPS. Please go ahead.
Hey, everybody. I'm here with Jeremy
Metz. Hey, David, when we
met the other day, you talked a little bit about the amount of money that consumers are spending in your mall for every minute they're there saying there's like a one to 1 ratio. I'm curious if you've done any work to think about the spending of millennials and teens versus say their parents to sort of further dig into whether the impact of the Internet and technology is going to be a growing problem just from a generational perspective?
I don't have it in front of me. But yes, we've looked at the typical generational gaps that you would see baby boomers, generation X, so on. Yes, I don't have that in front of me, but that's those numbers are it's not what you think it is. I mean, in other words, there's not a big differential between Generation X and Millennials. The one thing we're starting to see is the baby boomers probably more of a trend on their decreased expenditures than anything else.
Again, I think the millennials offer great opportunity for us because they're looking for they are going through they're generally going through their increased income opportunity over the next decade. It's a huge population base, greater than even
the baby
boomers. These folks will get married. They will have children. They will move out of urban environments, especially with the more difficult living conditions that's going on in a lot of urban environments. They are, we believe, loyal shopping, mall shopping consumers.
We've got and we're making the mall generally a better experience for them to be at. So I don't think there's a big differential. I don't have the numbers in front of me. And I think the millennials 80,000,000 deep, grew up in the mall environment. They're comfortable with the mall environment.
And as their income grows and as they age and have kids, I think they'll be loyal mall shoppers, especially given the environments we're creating.
I appreciate that. I think Jeremy has got a question as well.
Sure. Yes, just two quick ones. In terms of the lease cancellation income, it's the highest it's been in a long time. David, earlier you mentioned Jones. I was just wondering if there's any other tenants in particular that maybe drove this.
I think Forever 21 was in a few supersized locations. They were looking to downsize. Not sure if they were a part of it this quarter?
No, no Forever 21. It's basically the again, the big one was Jones. There's a there were a couple others that we that year to date that we've dealt with. But I hate kind of going through retailers on that. It's somewhat confidential.
The good news is lease settlement income does ebb and flow. The good news is it's not anytime we do that, we still have the space. So it kind of if I get 3 years of rent and then I get the chance to lease the space back again, I mean, that's good business. There's nothing wrong with that. And I said and to put the earnings in perspective, and you may not have caught the original response to an earlier question, Net net, when I look at the stronger dollar from our foreign investments versus the increase in lease settlement income from $0.14 to $0.15 I'm in the whole $0.05 year to date.
So please keep that in mind as you think about our business.
Got it. And then just switching gears quickly. Highwoods recently announced they were looking to sell Country Club Plaza. I was just wondering, is that something Simon would be interested in or any thoughts on where that process is at?
I understand it's there's a process. I think it's good real estate. It's got a good position in its marketplace. But beyond that, that's just that I'm not informed in terms of numbers or anything else or process, but I understand there's a process and it's always been very good real estate, good market.
Okay. Thank you.
Sure.
Thank you for your question. The next question comes from the line of Jeff Donnelly from Wells Fargo. Please go ahead.
Good morning. Just maybe sticking with leasing, I'm just curious, David, do you think the increase in lease settlement income you're getting foreshadows potentially more space coming back to you guys after the holiday season through bankruptcy?
I actually think it's tailing down. As I look at what generated the list, it's a couple of odd things in our watch list is actually the guys that we were worried about has kind of happened and done that. So it's out there. It's possible. But I actually think next year will be less impacted by bankruptcies than we were this
year. And switching gears, I'm just curious for your take as Macerich has taken the joint venturing some assets at a low to mid 4 cap rate that we've been told are fairly middle of the pack for them. Does that pricing in the market maybe lead you to feel there might be pockets of your portfolio where you're open to JVs or even selling out some assets entirely to expand your repurchase initiatives?
I don't really why don't you rephrase it? I don't really want to comment on what Macerich did. So
I'm just curious about just as a comp for transactions in the market, does something in the 4s compel you to say, gee, maybe you look at some of selling your assets to fuel repurchases?
I don't know. I mean, the fact of the matter is we're we are very comfortable with what we're doing. We sell assets. There generally is complexity when you go to joint ventures. We like to do joint ventures when there is new opportunities because there is it's easier to justify.
So for instance, just to take a few we're pleased to be part of new joint ventures on couple of the new developments like Brickell and Clear Fork, good very good partners, great real estate. That was the only way we could do that. I like those kind of joint ventures where it's more new opportunity than otherwise. If we will sell assets, we've sold a bunch of assets. Don't forget, we did a significant spin off of our strip centers and our smaller malls.
I don't rule it out. I don't think we necessarily it's not a priority to do. The priority for us is to grow our earnings, grow our dividend, execute our redevelopment, development pipeline. And we have the buyback, and I don't think we necessarily need the capital from existing properties in terms of joint venture to execute on the buyback.
Well, speaking of JVs, I guess, you teamed up with Hudson Bay to acquire, was it Galleria Kauffhaus stores?
What can
you tell us about those properties and just maybe what your plans are for those locations down the road?
Well, look, I think it's great, mostly city center real estate in Germany, which is a very strong market, very little retail as compared to the U. S, as an example. It's got built in growth even if it just stays kind of the credit lease that it is. But we think there's some ability to redevelop some of the stores, take back some of the frontage, much like we're doing with some of the department stores here in the U. S.
And it's a strong cash flow business, appropriately valued with some redevelopment upside.
Question. We do have another question and it comes from the line of Ki Bin Kim from Robinson Humphrey. Please go ahead.
Thanks. Just going back to your retailer watch list comments. Last year when we had Radio Shack, Wet Seal and Dev Shops and Dahlias and some others, how early did you have a read into that they would go BK in your, I mean, overall?
Those particular ones?
In general, like I was just kind of curious how much of an early warning sign does the watch list provide to
you? Pretty early.
Yes, Kevin, it's Rick Sokolove. We certainly can see this coming a long way away based on the trends of what their leasing activity is or sales activity when they publicly report, are they looking for new equity. So none of these are surprises. And as David said, the ones that went away, they had been on the ropes for years years and they just ultimately ran out of the incremental equity sources and out of file.
Okay. And maybe if you could put in a kind of easily digestible number. You mentioned 1,300,000 square feet that was impacted this year. In broad numbers, what does that look like next year?
Well, it's hard predict what next year is going to be. But as David said, we anticipate that next year will certainly not be as large a year on bankruptcies as we had this year.
Okay. Thank you. That's it for me.
Thank you. The next question comes from the line of Vincent Ceja from Deutsche Bank. Please go ahead.
Hi. Good morning, everyone. I know we spent quite a bit of time on the sort of the impact of the dollar and tourism sales. But just curious if you could maybe give some more specific color about Miami and then specifically Brickell Center?
Well, Miami is feeling some of the heat from obviously Latin America, but actually the leasing to Brickell, Rick?
Yes. Brickell is doing very well. It's opening fall of next year. We've been announcing periodically the tenants that are stunning up. It's a wonderful mix of designer tenants and restaurants and it's anchored by Saks with a cinema.
And if you've been down there, it's a very incredible project with the 2 condo towers, the East Hotel and the 2 office buildings in addition to the retail in a market that is really the financial center of that market. So we're very excited about it going forward. Okay.
So safe to say no impact on demand despite some of the you made tourism impacts in the near term. So similar to your comments from
for the overall. Look, I think what I said earlier is consistent with that. Retailers look, that's going to attract the better long term thinking retailer. So the fact that tourism is a little soft right now doesn't detract the better retailer. When I say better, I'm not just talking mix, but just they're better retailers.
So I'm just trying to explain to you what's been reported in our sales per square foot. I also made the comment to you, I don't think that is going to detract from the demand of our real estate and our ability to drive comp NOI because our we're going after the better retailers, and the better retailers look through a quarter or 2 of sales volatility for whatever reason. And that's the point I've been trying to make to a lot of folks a lot of time over retail sales. Retail sales is interesting, but not a predictor of comp NOI growth. And we've done all sorts of regression analysis.
I've talked about this ad nauseam, but we report the fact for you to have, but it doesn't detract from the ability to generate increased cash flow because that's more supply and demand oriented and what the market rent of our space rolling over is and what that particular location is. And if you got a good space and a good mall, you're going to be able to generate given that rent rollover that rent has been there for 7 years. You got to look at where that rent was rolling over 7 years ago. So and that's why we have re leasing spreads of $11 a foot. That's the focus.
The volatility of retail sales is more interesting from a retailer point of view, less from the landlord. So take New York City Street Retail. There's volatility in that retail real estate there, but has the market value I'm sorry, in retail sales, but is the market value of that real estate changed? Probably if you talk to a lot of people, they probably tell you
no. Okay, fair enough. Thank you.
Sure.
Thank you for your question. We have another question from the line of Mike Mueller from JPMorgan. Please go ahead.
Yes. Hi. Couple of questions here and one you may have indirectly answered before, but what was your share of the lease term that you booked this quarter?
It's in our supplemental.
The share
of it is? Because I thought that was the consolidated amount.
Well, if it's consolidated, that's our share. We may have a little minority interest in it, but if it's consolidated, it's our share, right?
Okay. And then secondly, on the outlet development side, can you talk a little bit about the returns you're seeing when you compare Europe starts to U. S, to Asia and how you think about the order of opportunities?
I would say that the new development in Europe tends to be a little lower than our developments here around 11% return on cost generally. In Europe, they may be a touch lower, say, 8% or 9% to start with. And in Asia, we really don't do them unless they're double digits because you got tax impact and we want a better risk adjusted return. I'd say they're probably in the 12% or 13% range.
Got it. Okay. And I guess as you're thinking about opportunities going forward, I mean is it more skewed toward the U. S. For new starts at this point?
Or do you think you're going to see a little bit more pickup in Europe?
Well, Europe, like I said, we're really excited on the Provence deal, 90% of it. That's a big project in a big market that hasn't seen a quality outlet like that. So that's good news. There's 2 or 3 others through McArthur Glen that we're making good progress in, one in Spain that we hope to start construction in 2016 on as we go through the permitting. So that's up there as well.
Another one in the western part of Paris that we are making good progress on, other one in Belgium that we're making good project progress on. And in Asia, we've got 2 or 3 others that are a little more difficult to predict, but we've got our second one in Malaysia that we're confident we'll get started as well as Mexico City, we expect I'm sorry, in Mexico, we start one next year as well. So we're making progress.
Got it. Okay. That was it. Thank you.
Sure.
Thank you for your question. The next question comes from the line of Carol Campbell from Hillard Lyon. Please go ahead.
Good morning. How does your volume of temporary and pop up tenants for this holiday season compare to the recent past? And then historically, do you know what rate of those tenants convert to a longer term lease once their temporary lease expires?
Well, if they pop up, generally, they don't convert. But more and more retailers are testing pop ups to decide whether they want to do a long term longer term deal. But I would say generally, there's an increase this year primarily because we have a little bit more space from the bankruptcies that we've had this year. But Carol, just to remind you, we don't include that in our occupancy. It's got to be a year in that, but there'll be more activity in pop up stores for the season just because we've got a little bit more vacancy due to some of the bankruptcies.
And I was thinking of your American Girl store that's open in Castleton, I've seen where they're basically doing that to test the Indianapolis market. Are you seeing more retailers not just doing a pop up store for the season, but more so to actually test the market?
You're starting to see a little bit more of that. I think that's safe to say.
Okay. Thank you.
Sure.
Thank you for for your question. We do have another question. It comes from the line of Ryan Petersen from Sandler O'Neill. Please go ahead.
Yes. Thank you. I just wanted to ask about Houston Galleria and the Houston market and if you guys have seen any change in the shopper demographics there or the retail sales trends more generally and what your expectations are going forward?
In what sense?
Just if whether you think that Houston will be hit, whether retail is kind of the second impact of oil prices there?
Our Galleria is such a great asset. It tends to it's kind of the unambiguous number 1. For a market of that size, it's kind of unambiguous number 1 shopping center. So it tends to weather any economic downturn generally. But I will say this, look, we're not our retailers are not immune to a little bit of a down economy.
And Houston is also a big tourist market for the Mexican nationals. So there might be some slight sales retail sales impact, but it will have no impact to the long term rate asset that Houston Galleria is as well as, as you know, we're doing a significant amount of transformation of that asset with the new Saks store, the new Saks wing, the new Webster's, which is going to open in the next 30 days or so. It's a lot we have a lot of phenomenal stuff going on there. But sure, could retail sales be marginally impacted there? Sure.
But Houston Galleria tends to continue to way outperform just because it's such a great asset. Rick, I don't know if you want to add anything.
No, I think it is very well positioned. And as David said, it's got the unique mix of anchors, restaurants and small shops
in that market has been very enduring over cycles in the energy belt for And if anything, I think Houston generally has become less of a I would certainly say 20 plus years ago was more boom bust. But with the medical it's with the universities, the medical facilities there, it's much more diversified economy than just oil and gas.
Okay. Thank you.
Sure.
Thank you for your question. We do have another question. It comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.
Thanks. Good morning, David. Good morning. Just two quick questions. I know you've talked about the weakness in the U.
S. Outlet business, but just what about stuff kind of north of the border, south of the border? Just how kind of are the international assets performing?
I'm sorry. I didn't hear your first part, Steve.
Sorry. Is that better?
Yes, that's better. Thanks.
Okay. I know you've talked about the weakness in the tourism markets for the Internet, for the outlet business here in the U. S. I'm just curious how the assets in Canada, Mexico, over in Japan, the few that you have over in Europe, just kind of how are the non U. S.
Ones performing from the sales and leasing?
Yes,
again, I don't want to react. I mean, there is a little bit of softness due to the strong dollar with U. S. Tourism. You're seeing that in all sorts of businesses, hotel business, whatever.
I mean, we're dealing with it. But the fact is the international properties are actually performing very, very well. Europe sales, retail sales is actually relatively impressive, the Klepierre portfolio. The sales the outlet sales that we have with MacArthur Glen are very Korea, little bit I'd say the only market that's a little soft is Korea, a little bit because they're not that not SARS, but whatever the last version was, Mars, MERS, whatever, and the Chinese consumer there probably going a little bit less to Korea for the time being. But I would say Mexico sales are we got one asset.
Canada is great. Toronto is terrific. Montreal is finding its market increasing. So generally, those centers are very, very pleased with those results.
Okay. And then I guess the second question, you sort of briefly touched on Klepi. I didn't really hear much on the call. But just how's the integration gone? How if you had to kind of rank on a scale of 1 to 10 just all the things you want to do, where are you guys in the kind of process
of transforming the
combined company? You mean with respect to Corio?
Yes, Clepierre Corio and just kind of overall business kind of merger.
But I just want to look, they bought Corio that we don't own them. So we're not integrating with them. So I just wanted to distinguish that. I would say, look, they've done over the 3 years we've owned it, they've done a lot of transformation, selling a bunch of stuff, buying a bunch of stuff. That's pretty much past them.
The big focus next year is really operationally, which they through osmosis are improving their capabilities of doing that. And that's been the big focus, I'd say, in 2016. Now that the integration with Corio is pretty much done, the sale of the big Carrefour portfolio is done. And so I think it's going to be an operational story. But we're not operating the business.
We're providing strategic input. And I think they've done a very good job of gleaming whatever nuggets of strategy we are able to impart and ignoring the ones that have no value because we're you know what, sometimes we don't have the right strategy. So they're doing a good job, but I think operationally, there's I'd say they're the first to admit that they can continue to improve just like we can. And I think that's a big for them in the upcoming years. But we're not integrating.
I mean, they're running their business.
Well, no, no, I understand that. I'm just saying as sitting as Chairman, you kind can sit at the top and look at what they're executing strategically and just trying to figure out how much of the playbook has been done and how much is left to do?
Well, look, there's always a gap in terms of how we might do things versus how they do things there. They're not I still think there's room where they could be operationally better and that will take longer for them to achieve, but I have confidence that they will get there. And we'll help out as much as we can. They're pretty good, and they're doing a good job.
Thank you for your question. The next question comes from the line of DJ Busch from Green Street Advisors. Please go ahead.
Thank you. Just a quick follow-up on the Hudson's Bay partnership. Is the opportunity set to do deals like a cough off greater abroad versus here in States? I guess, how do you see that investment growing from a geographic perspective?
Well, I think I do think perhaps the international business may offer a few more opportunities. But they're very creative folks along with our resources dedicated to it. So I wouldn't rule out domestic opportunities. But I'd say maybe marginally more opportunities internationally than here, but I wouldn't rule out domestic opportunities as well.
And then is the joint venture open to kind of retail leaseback opportunities outside of the traditional department stores as well?
Sure. Yes.
Okay. And not to belabor the point on the international, the softness in international tourism, but the mills operating metrics were pretty impressive again and those are obviously greatly influenced by Sawgrass. Is that similar to your comments on the Galleria? Is Sawgrass one of those assets that kind of bucks the trend?
Yes, but we did see a little bit of softness there as well. So I mean, it but all of these assets buck the trend, but they might have, again, the retail sales, not the cash flow, may have some short term impact. But Sawgrass had a little bit of softness as well, not it's not immune. We
have no further questions at this time. So I'd like to turn the call over to David Simon, Chief Executive Officer, for closing remarks.
Okay. Thank you so much, and we'll talk to you soon.
Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Have a good day.