Hello, everyone, and welcome to the Second Quarter 2015 Simon Property Group Incorporated Earnings Conference Call. At this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of this call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to the Vice President, Investor of Relations, Tom Ward.
Thank you, Lauren. 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 completed several significant redevelopment projects, started construction on others, announced even more that will further enhance the value of our real estate. We identified additional avenues for growth through our 2 new retail partner joint ventures. And most importantly, we continue to produce strong operating and financial performance.
Results in the quarter were highlighted by FFO of 2 point $6.3 per share, which included a $0.22 gain on a sale of marketable securities. Excluding the investment gain, FFO per share was 2.41 $4 quarter compared to the prior year quarter due to a strong dollar against the euro and yen. On a comparable basis, excluding the contribution from WP Properties in the prior year period and again the investment gain, our FFO per diluted share increased 14.2 percent or over $0.30 year over year. Occupancy was 90 6.1. Leasing activity remains healthy.
We recorded spreads of $10.87 an increase of 18.4%. Comp NOI for the quarter increased 3.6%, which was coming off a 5.6% comp increase in the Q2 of 2014. And for those of you that are interested, we do not include lease settlement income in our comp NOI or new deals such as Jersey Garden or our recent joint venture activity. And we also do not include the impact of recently developed or expanded centers. And finally, we continue to produce strong comp NOI increases year after year as well as continue to operate at the highest margins in our industry.
Total sales across the portfolio increased 2.2 percent for the trailing 12 months even with the loss of bankrupt tenants. On a comparable basis, the sales per square foot square foot increase for the 12 months ending June 30 was 4.2%. And as a reminder, our sales per square foot metric is not adjusted to remove any tenants who have vacated their spaces and includes tenant sales activity for all months a tenant is open during the trailing 12 month period. Redevelopment is ongoing at 28 properties across all three platforms for a a total spend of $1,700,000,000 We opened significant expansion activities at Las Vegas North and Shishui Premium Outlets in Japan started construction on several new and strategic projects during the quarter. Construction continues on some iconic properties including Rosewell Field, the Galleria in Houston, Stanford Shopping Center, King of Prussia, El Amo and our premium outlets are expanding in Chicago, San Francisco and Woodbury.
This is my opportunity to develop my list as opposed to Rick's. Our Chicago and San Francisco outlets open expansion open in August and the rest of those kind of expanding of those iconic centers open in the next 12 months. We also announced plans for further expansions in Sawgrass, The Mills at Jersey Gardens, La Plaza Mall and The Shops at Riverside. And we expect our redevelopment investment to be at least $1,000,000,000 annually through 2017 substantially funded with our annual free cash flow, which will continue to contribute incremental growth in our NOI and reinforce the positions of those assets in the respective marketplaces. Now let's turn to new development.
Construction, it continues on 3 new outlets, all in very major markets and they're scheduled to open in the next 3 months. Gloucester in Southern Jersey and Philadelphia in fact opens in 2 weeks August 13. Tampa and Tucson open in October. And finally, we opened Vancouver on July 9 with traffic that exceeded expectations. Construction continued or in fact started in Columbus with our partner Tanger and we are slated to begin construction in 1 new domestic premium outlet, which will be announced before year end.
We also started construction at The Shops at Clear Fork, our new full price development in Fort Worth anchored by Neiman Marcus, which will open in early 2017. And we are pleased to partner with Swire and the Whitman family on the retail component of Brickell City Center, which will open in the fall of 2016. We own 25% of this project and we'll manage this center. Upon completion, Clay Pier continues to progress according to plan. Their integration of proceeding well.
They continue to recycle their assets and in fact announced a deal to sell a portfolio of Netherland assets for $770,000,000 or euros I'm sorry and which will continue to delever the company. We also purchased 2% of Clay Pier from the BNP offering. We're now over 20 point we're at 20.3%. We purchased those and the stock is obviously trading higher than where we purchased that additional 2%. Balance sheet activity continues balance sheet activity continues strong.
We did several secured financings in the quarter, continue to lower our borrowing cost, increased our debt maturity. Our liquidity is $5,500,000,000 Our industry leading balance sheet continues to get reinforced and separates us from our peer group. Our unencumbered cash flow is well over 2,500,000,000 dollars as Andy shakes his head affirmatively. And finally on the balance sheet, we as you know announced our $2,000,000,000 share repurchase. We in fact in the quarter bought 5 $5,000,000 during the quarter of both common and units, which is dividend and let's not lose sight of the dividend.
We have announced yet another increase sequentially of 3% to 1.55 dollars and a year over year increase of 19%. We will pay at least $6 in 20 15, which is an increase of at least 17% from 20
14
and well above where we were in the Great Recession at the height of $3.60 in 2,008. So finally, guidance has been increased again up to $10.02 to $10.07 and we are now ready for your questions.
Our first question will be coming from the line of Matthew Collinger. Excuse me. I'm sorry. Our first line our question is coming from the line of Ross Dawson. Your line is open.
Hey, thanks. Good morning, guys. You're Jeremy Metz. Hey, David with the repurchase from the OP unitholders, who were the sellers of those units? Did you approach them?
Did they approach you? How did that work?
A little bit of both. It was associated with the prime transaction Ross that we completed in 2010 and they were the sellers.
Okay. So no members of the Simon family sold
the unit?
That's correct. That's correct.
Okay. And then on the buyback as well, how should we think about it from a balance sheet perspective? And if I look at your funding needs against your after dividend free cash flow, my math is basically you can fund your entire development program with call it $1,000,000,000 of free cash flow a year. So if you continue to buy back stock at this rate, obviously the leverage of the company would tick higher. So how should we all think about continued buyback versus balance sheet?
Well, it's a very good question. I think the first we want that in our arsenal. We are sensitive to it's part of our capital allocation strategy. I think you should look at this first step as a trade from 1 from our other marketable securities that we had held with no reason to hold those. We basically took that capital and reinvested in our business, because we wanted to signal the market that we believe in the continual growth of our enterprise.
I think it should also signal we're out of the big deal business. So I think no one's picked that up, but we're we don't see any big deals on the horizon for us. So we are obviously very focused on the development, redevelopment. As you know, I mean, I stumble. I'm not a very good reader of a text.
But you look at our activity in the redevelopment and new development, it's astronomical. It's industry leading, lots of great stuff going on. And I think that's the way to look at it. We are price sensitive. We won it there.
REIT stocks have been very volatile. But I think it's a signal that we took one investment and reinforced that. We're out of the big deal business. That's not to say we might find a deal here or there. But the balance sheet is sacros.
Thank to us. We haven't worked 22 years to do it. We survived the last great recession with flying colors. We've quadrupled our dividend and earnings per share and all the other stuff that I won't go through at all. But I think it's more of a signal and the belief in our business and also a signal to the market that we're out of the big deal business.
Did I stop you?
Our next question will be coming from the line of Michael Bilerman. Your line is open.
Hey, David. Good morning. Just continuing in terms of the buyback, you talked about your business and having confidence in your business. You didn't talk a little bit about sort of discount to NAV and the arbitrage that exists between public and private. And I think your comment exactly in terms of looking at a Macerich that $450,000,000 putting into your own stock, which you I think has great prospects.
But would you think about accelerating or selling interest in any assets to go further into your stock in now that discount that exists between public and private?
Well, look, I think the reason it's more than just NAV. It's what your enterprise can do in terms of growing earnings and cash flow and then ultimately increasing your dividend. I mean as you know, I mean if you strip out the gain in WPR, our quarter over quarter growth was 14.2%, which as you know a lot of people have criticized our size that we continue to be industry leading earnings growth. So you've got to look at whenever you invest in something what's that yield going to get you. And as our earnings grows that's not a bad investment.
So it's more than just the NAV analysis. We also we will continue to sell what I'd call lower quality non important assets to us. We don't publicize it until it's after it's done, but we'll continue to prune the portfolio. But we're not a big believer in selling our top assets to reinforce the value of our company for external purposes. I mean, we know what we're worth and we operate I mean, that's why we're in this job.
We're operating accordingly. And but selling the top assets at the end of the day, those top assets tend to grow the most and I'd rather have our shareholders own more of it than less of it. We have the free cash flow to take advantage of the arb that may exist between private and public values. And it's just another tool that we have available to us to take advantage as we look for investment opportunities.
Great. And just one quick one for Rick. You have a popular press off to focus a lot on shrinking retailers and closing stores. Can you just give us an update in terms of who are the fastest growing retailers, the most exciting retailers that you're seeing pick up stores and maybe just break it up between a larger format and a smaller format store base?
Well, thank you for the opportunity to talk about my list. I think there's 4 categories of retailers that we're really doing a lot of business with international retailers, the retailers that are looking for a presence in our properties. We recently just announced and have opened Blue Nile and Bauble Bar and we're working with a number of others that want to come into the properties. Our existing retailers that are looking to grow through brand extension. You just saw Dick's announced Chelsea Collective.
That's all L Brands rolling out White Barn Candle. And the last are just the new retailers that are coming online. And just to give you, we've done deals recently with Mont Blanc, Fry Boots, Jo Malone, Suitsupply, Aritzia. All of these are really exciting concepts that are unique in the number of stores and that's going to separate our properties.
Great. Thank you.
Yes. And I would just say this Michael, I mean what's exciting, yes, we have had bankruptcies this year. It does take time to replace them. But the amount of new whether it's restaurants, the e commerce going to physical brand extensions is really at a high. And our leasing folks, if you've seen what we're going to do at Roseville Field, both some with some of the new food operators as well as some of the e commerce with physical.
I mean, it's good stuff. So I mean, in that sense, it's comforting to see that there's a whole host of new entrepreneurs that want to be in our environments.
Yes. Thanks.
Thanks.
Our next question comes from Paul Morgan. Your line is
open. Hi, good morning.
Good morning.
You talked about how your same store numbers don't include your redevelopments. And I'm just wondering, I mean, at this point right now, it seems like you have a kind of very large share of some of your top centers in redevelopment. Is that a drag having that excluded? I mean given the strength of some of that?
Yes. First of all, we don't consider it a drag. You have to put comp numbers in a Paul, you have to put comp numbers in a historical perspective. And you've got to look you can't look at it 1 quarter over quarter. You've got to look at it over 3 to 5 year period of time.
And if you look at our comp NOI increases over that 3 to 5 year period of time, there clearly you would conclude that we had significant outperformance. And I don't as much as everyone wants to focus on a quarter here and quarter there, I want to reinforce we do have the highest operating margins in the business. We also have the lowest overhead in terms of however you want to do it enterprise value, EBIT percent of EBITDA, percent of revenues in business. And that's why we have the best balance sheet in the business. And that's why we're able to grow our dividend 15%, 20% a year.
So again, certainly there are yes, we are remerchandising Houston Galleria and Copley and Stanford and Roosevelt Field and King of Prussia and we're moving tenants left and right. We encourage everybody to go see the properties. And yes, from a quarter perspective, it's going to it's not going to impress some. But I will tell you what we're doing, I am really impressed with internally. But I would encourage you and others to look at comp NOI over a more of an extended period of time than comp quarter to quarter.
So I mean, I do that.
But again, long story short, yes, we are having some impact on all the remerchandising going on in our portfolio.
So I mean, if I take that longer view and look back over the past say 2 or 3 years in your numbers, I mean is there any reason to think as I look forward 2 or 3 years that you wouldn't be able to do kind of the same type of numbers sort of I guess deeper into the economic cycle?
Well, listen history is a good indicator of what you might be able to do in the future. Look, we would hope that all this stuff that we're doing will accelerate the growth profile of those assets. We have to execute. Believe me, we are not out of the execution phase. But I would think Paul at the end of the day that these assets are going to grow very, very nicely.
And we'll increase our comp NOI growth and meet our historical growth. Now the fact is we're subject to economic cycles. We're subject to tenants going bankrupt. We're subject to downtime. We're subject to sales of our retailers volatility.
So we don't control everything, but we've had a pretty good track record. I would hope that that would continue. But it's not you don't fall off the log for this stuff. You got to do it each and every day and our team is pretty good at it.
Thanks. And then just my follow-up on the Sears joint venture. I mean how far are you into the process of going through and saying, well,
here's what we are going to do near term.
Potential redevelopment and the timing and when we might get some of those details?
Hi, it's Rick. We are very far along in that process. We have already had multiple meetings with Seritage. We have developed redevelopment plans for each of the assets. They are in the process right now of being priced.
And as they become mature, we will announce them and proceed forward. But they include the addition of specialty stores, mall expansions, adding restaurants, adding boxes and appropriately sizing peers. Bear in mind in our venture, it's almost 850,000 square feet of additional space that we're going to be able to deploy along with those TBA Auto Centers. So it's a great opportunity and we're well into it.
Okay. Thanks.
Our next question comes from the line of Jeff Spector.
I just wanted to focus a little bit more on the redevelopment pipeline. David, I believe you said that $1,000,000,000 through 2017 and I know it's been going on for a number of years now. I mean, what are your thoughts, I guess, at this point beyond 2017? Is that by 2017 you're really at this point touching those top producing assets? Or do you think you can expand that program beyond?
Well, I think as Rick mentioned, I mean, I do think Sears gives us a whole host of additional redevelopment opportunities. We've got we are closer and closer to starting in fact, we're actually starting the Southwest Corridor in Copley, which is not in those numbers yet. We are absent something really out of the expected. We are going to start Copley very, very shortly. We've got fail safes in that investment, but we are moving with speed to deliver that.
We think that's great. Sears presents a lot of opportunities. We've got outlets that we've done the big ones. We're doing a bunch of small ones that we need to look at. Rick, you want to add to it?
I would also tell you, we've already announced the expansion in Jersey Gardens. That's going to be a major redevelopment. We have announced the expansion of Sawgrass. Right now, we're finalizing the expansion of Colony book, redeveloping the Oasis. And I can tell you, we are continuing to mine this portfolio and I believe we will have a continuing series of pretty substantial value add opportunities across all three of our platforms.
Okay. Thanks. Then one of the other focuses that Craig and I have been paying attention to of course on the technology front, the winners in the Simon launch and in particular the SKU IQ. So from where we sit, I guess it's just been hard over the last year to really keep track of exactly what's going on here on these different initiatives. Can you discuss either the winners or SKU iQ in particular and where do you think this may
go? Yes. Look, I don't want to we are don't get mad at me, Jeff, but I believe we're happy to I think we are close to putting together with Skyler and Michael an investor I don't know what you call them an investor not roadshow, but investor meeting to kind of lay out all the investment we made. And maybe with not exactly you, maybe with somebody else in you, but a well respected peer of yours. And we'll lay it out to the investment community, all the different investments we've made and why.
So I think we're shooting for some time in October. But there's a lot of neat stuff here. These are little in the scheme of things little investments, but they run from creating energy efficiency with all of our LED lighting to helping retailers to actually new e commerce ideas that may go to the mall. So it's a lot of different categories, different levels of investment in the kind of the ABC rounds. And we're happy to share that data.
It's a lot though to do on a call like this, but we will be sharing a lot of that stuff with the with our investor with our investors.
Okay. Thanks.
Sure.
Our next question comes from Ki Bin Kim.
Thank you. A quick follow-up first. Have you bought any more shares post the
quarter end? We operated if you're familiar, you have to operate under a 10b-fifteen rule once your quarter is completed. We gave guidelines because you can't be in a market during that period of time. And the guidelines that we gave to the broker were not net. So the answer is we have not purchased any further.
Okay. And the second question, is there any incremental change in trends you're noticing in the outlet business? Maybe not the premium more info outlets, but maybe something more secondary where maybe the pricing gap between full line mall retailers and outlet businesses or retailers are maybe narrowing and you've seen like TJ Maxx and Ross doing better. Have the secondary type of outlets, do you notice any kind of less importance or less traffic or any kind of incremental trends?
Not really. I mean, I think not really at all. I mean, I think our outlet retailers are very focused on finding the right balance between Full Price and outlet. That's why they're very focused on not overexposing the brand. There have been certain retailers that have had disappointing sales both in full price and in outlet.
Outlets no different than full price in that if a retailer is not hitting it, it will affect their sales in full price and in outlet. But no trend in that at all. I mean we have outlets in Cincinnati, Columbus, Indiana, St. Louis that are all doing just fine. They are affected by retailers that may not be doing as well as they were a year ago, but that's similar to the Full Price Mall business as well.
Okay. Thank you.
Our next question comes from the line of Alexander Goldfarb.
Hey, good morning out there.
Good morning.
Hey, how are you? Just a few questions here, David. First, just going back to the dividend and stock buyback, certainly, as you guys outlined where you want to put your money, redevelopment and development seems to be the 1st and foremost. And then when you move down from there, once you've solved for paying out appropriate with taxable income, it sounds like your bias is still towards increasing the dividend versus buyback. So I just want to see if that's a proper interpretation from your comments or if you're thinking that any excess cash may now go more towards buybacks versus the strong dividend growth?
Well, the dividend listen, it sounds weird, but we're highly profitable, right? So as our earnings increase, our taxable income increases and therefore our dividend increases. Very simple. That's the REIT model. We're great believers in the REIT model.
That's why we're all here. And so our dividend is going to increase. There's just no two ways about it, because our we have created a very nice earnings machine as long as we don't make mistakes about where we invest capital, we'll be in good shape. I always like increasing the dividend more than stock buybacks. We had this unusual situation where we basically took one investment and felt the most immediate interesting return would be buying our stock back.
And I think having the flexibility to buy it in a volatile market when there is a big disconnect is what we'll be focused on. But I would continue to expect, knock on wood, that our earnings continue to move up. We're going to be focused on increasing our dividend. And it's underappreciated in the REIT sector. But if you look at our dividend yield compared to our peer group and you look at our dividend growth and the expectations of higher dividend growth, we look like a cheap stock.
So I mean do what you want with that, I guess. I don't know.
Well, as an analyst, we can't do anything with the cash we can't own it. But obviously it's good to cash dividend checks. Moving over to Europe, you guys announced the JV with HBC in Germany and involved a lot of high street retail. In the U. S, you've shied away from doing high street retail.
You've stuck to the malls and outlets. So just sort of curious, do you have a different view with high street retail in Europe that you don't share in the U. S? Or it's really again just a pure credit play when focusing on retailers and you're not trying to do something as far as potential to get at high street retail in Europe?
No. Look, I think the market in the U. S. With respect to high street retail sophisticated. It's expensive.
There are a lot of guys that have been at it for a long time. We think Europe is a little bit different in that maybe there's more opportunity for us to do that just like the opportunity that we saw with Klepierre at the outset a few years ago. So that's not to say we're the HPC thing is a little bit of credit play. It's a little bit of creating a growth vehicle. It's betting on I think an extremely talented CEO and team and HBC, these guys are entrepreneurs.
They're smart. They're sophisticated. They want to grow their business. We're happy and pleased to be their partner. And I think that entity ultimately will look to create a broader portfolio.
High Street in Europe is a little more interesting maybe from a valuation point of view. U. S. Is a little more pricey, got a lot more sophisticated players. But we'll see how it evolves.
But it's we're making I think a good bet where we've got very strong partner, strong assets, strong credit. And between the 2 of us that have the nose and instinct for good deals, we should find some opportunities.
Our next question comes from Vincent
Just want to go back to the Sears JV and just curious in the context of investment opportunities, there's a lot of chatter about different retailers doing something with their real estate. Just curious if you're having more conversations with others on structures like the Sears or the HBC deals that you have?
Well, I think there's got to be more than just marking or financing retailers' real estate. So for instance, I can just contrast the reason we did Sears is because we partnered with them is because it's all about redeveloping over time those boxes. Sears Store of the Future may be part of it. They may not be. But that's basically a redevelopment play.
HPC to contrast it was, yes, they got a mark out of the real estate, but to me we created if HBC only wanted to just mark their real estate and do credit, we wouldn't have played we saw an opportunity to bet on a very accomplished entrepreneur, great brands and lo and behold we did the deal and we're they are buying the German department store, but we're entering in German real estate in a big way. If it's just marketing real estate or just a credit, that's not really exciting for us. So we're happy to talk strategically with our retailers about it, but there's got to be more to it than just that. And so I think this world will present opportunities, but there's got to be more than just marketing their real estate. Whether it's redevelopment or creating a growth vehicle to go do something, it's got to be more to it than what I just said.
Yes. That makes sense.
But I guess I would just say it seems like there would be plenty of redevelopment opportunities beyond just Sears, although Sears offers plenty of opportunity in itself, I guess. But maybe just thinking about other areas, I mean, can you just comment on the MacArthur Glen pipeline? I think there's one project you're expecting to start here this year. But how does the rest of the pipeline look like for potential additional developments there?
Sure. There is in Provence, we are in fact, we just bought the land believe it or not is finished. And that's an all systems go deal. We are in the final throes of expand about to start the expansion in Roarman, which is we'll be a partner in with other partners in that project. We have a pipeline in Normandy, in Spain with where we're partnering with Sonae.
And we've got we're looking we're not quite there, but we're looking seriously expanding Venice. So it's I would say it's a very active type in terms of new development. And obviously to be able to build starting in September in South of France is very, very exciting, very pleasing.
Okay. Just one last one question, a cleanup question. In terms of the guidance, assuming that does not include any future buybacks just what's closed already?
Well, look we Tom and I had this philosophical discussion today. We're a pretty large company. We're going to earn $10 a share this year thereabouts. We have so many ins and outs. We're just not a portfolio with we got so many things going on.
That's our best guess. We put it all in a blender. We give it to you. And everything it's all subject to change quarter over quarter. The good news is we hit our numbers knock on wood.
Hopefully, we'll continue. We don't isolate one particular thing over another and we'll see where it shakes out.
Okay. Thanks a lot.
Sure.
Our next question comes from Carol Campbell.
Good morning.
Good morning.
At this point with your other department store tenants, are you seeing any of them want to right size space like Sears?
Not really. We are constantly in conversations with them and we are doing a number of other potential things involving relocating department stores. For example, at Stanford, we had a Bloomingdale's that was oversized. We worked with them. They built a brand new store.
Now we're redeveloping the old Bloomingdale's in a small shop. Did the same thing with Saks at Houston Galleria. So it's a very dynamic process. We're constantly in conversation with them and we're doing a lot of things as a result of that, but there's not another store out there that has the kind of focused programmatic approach to decreasing their footprint size.
Okay. Thanks.
Sure.
Our next question comes from Michael Mueller.
Yes. Hi. Just going back to Sears again. What's a rough idea of the dollars that could be invested in those 10 or 11 boxes over time?
I think we're going to do that on a project by project basis. But obviously as we've articulated it's substantial opportunity and it would certainly be in a larger amount as opposed to a lesser amount, but it depends on the scope of the individual projects, but that is to come.
Got it. Okay. So it sounds like it could be in the couple in the 100 of 1,000,000 of dollars?
Potentially, yes.
Got it. And then, I guess, how does it work if you demolish a Sears box and do a major expansion well beyond the footprint, do they participate in that? Or is it just to the scope of the footprint?
Each project is differently within the Sears venture. They own a part the Suratage, our venture owns a parcel of land. So the venture would be focusing its redevelopment efforts on the parcel of land that is owned in the venture and that would be the extent of the activity in the venture.
Got it. Okay. Thank you.
Our next question comes from Caitlin Burrows.
Hi. Good morning. Just quick question on occupancy and the impact of bankruptcies from earlier in the year. I think we were pretty happily surprised to see that your 2nd quarter occupancy and same store NOI were actually somewhat stronger than the Q1. I was just wondering if you could go through some of the progress on re leasing that space and when you expect to have made up for the lost occupancy and NOI?
Yes. I'll just say our goal we're going to we still think we will come close to our year end occupancy of last year. But it's going to be it's not a no brainer. It could slip what I'd say immaterially, but others may have a different view of that. So I respect that.
But we're trending up. We're making
our goal is still try to get back to
the last So our goal is still try to get back to last year, but we lost what Rick? 9 40,000 Yes, 940,000 feet. So that's a lot of work. So we're a little bit on the treadmill, but we're a fit athlete and we're running.
David is speaking for himself. I wish. I wish. I would just add one thing that we're making very good progress going through it and it is an opportunity. It's hard work.
It has a short term impact, but the tenants that we are bringing in are certainly higher productivity tenants from a sales perspective. And so far the rents that we've been able to generate are in excess of the rents that were being paid by the former tenants that went bankrupt.
Got it. And then just also is there anything you could say on the difference you're seeing in re leasing the space at say your trophy properties versus whatever you would call the next tier in the next tier of your properties?
Look, it's actually thematic that the higher productivity properties have a broader band of interest. But that's what we do. And happily, we're also blessed with a portfolio that is predominantly those strong profits.
Right. Okay. Thank you.
You're welcome.
Our next question comes from Linda Tsai. Hi. I'm not sure if
this is something you could comment on deeply, but when you look at your redevelopment plans for Sears, do you think you're approaching your plans any differently from GGP or Macerich? Or is it relatively straightforward in terms of figuring out what a property is missing and splitting boxes and adding entertainment?
Look, I think they're very they're both very confident developers, redevelopers. So at the end of the day, my guess is it's not going to be all that crazily different. But so much of that is dependent upon the location and the local market. But they're both competent developers. I would probably venture to say it'll be similar.
But if they're better than us, we intend to copy immediately, okay?
And then retail is cyclical and while there's been a recent wave of closures, you also noted that there's also a lot of entrepreneurial concepts popping up. Do you think there's anything different about this cycle time around as it relates to maybe omni channel selling or bifurcation amongst brands catering to high end or low end consumers?
Well, look I would just say generally there's obviously the whole movement toward value on one hand and luxury on the other continues. The general the good news about that is we're positioned in both of those barbells extremely well. But that's not to say people lose sight of that. That's not to say the Middle American Mall isn't doing well. It's part of the community.
It gets ignored from a media point of view. There's assumptions made about those assets. There's extrapolation because one mall went out of business that all malls are going out of business. But I would say to you that the solid middle malls throughout America continue to do well, serve their purpose. But you clearly see a movement in a lot of retailers from either aspirational higher end goods or value.
There's no question about that.
The one comment I would make to you on the new retailers we are dealing with is that they are substantially more sophisticated than the crop of new retailers we dealt with say 10 years ago, better finance, much more focused on their niche and it's been much easier to deal with this new crop of entrepreneurs than might have been the case last week.
And look, in today's world, we all have to be better. We all have to be on our game better. So that's just that comes with I don't care what industry it's in. I mean everybody the rapid changes in this in the world is putting pressure on every industry, every operator. And that's why you got to have strong people, strong assets and a strong balance sheet to deal with it all.
Thanks.
Sure. Our next question comes from the line of Steve Sakwa.
Thanks. Just a couple of
quick questions. Rick, if you look at kind of the sales and leasing trends, is there anything that you can talk about regionally? Any big differences that you see?
Look, there are a couple of differences across the thing in our business. The Great Lakes, Southeast and Pacific were stronger, Mountain and New England were a little weaker. The better categories were home furniture, food, personal care, jewelry and athletic shoes.
I mean, I'd say Steve you're clearly the stronger dollar and the economic upheavals in growing markets, but with wealthy people Brazil what's going on with China and their focus on obviously Europe with the stronger dollar. I mean it has impacted sales the high tourist centers. And we've got we've got them. I mean there's no question. We've got them in South Florida.
We've got them in Orlando. We don't have New York City. We have Woodbury, which has been relatively flat and that's usually a center that grows every year. And that's I think that's more of all the stuff going on with the center than the tourism. But the tourism centers have had a little softness you see in the hotel industry.
So we're not immune to that.
I presume that's not having much of an impact on leasing just given the long term nature? Or do you actually think it's impacting leasing at all?
I'd say it's had no impact on leasing.
Okay. And then David, any just update on kind of the Copley kind of residential project?
Well, I mentioned it briefly earlier, which is look we're doing the Southwest corridor. We're finalizing the permits. And there which is more administrative. So it is all shaping up to we start to dig down to support the foundation going up. That's all moving should start the certain fail safe.
The way that building is being constructed, we have fail safe. So for instance, we're going to do the Southwest Corridor first, which is because we've got to create a new entrance to create the way to build that we have to go down into the turnpike. So we have to create the new entrance first. That's happening. That's been approved by us.
Then we go down into the turnpike. Then we go up to support the steel going up. So we will
be making that incremental decision.
But once we do the podium is where it's really got to poker. That's a year decision from now, but all systems are go and we are cranking. We don't see any reason to stop. So we the kind of nice thing about this is that we can stop look and listen to the market a year from now. And yes, we would have an investment in it, but we'll always be able to go up.
I don't see any reason why we wouldn't go up. But we're certainly going to go down and build our way up to create the platform to build the tower.
Okay. And then just last question. Anything on Deliv that kind of system just seems to have kind of taken a back seat. I haven't heard much about it. Any thoughts about that or how it's working or
I would comment on Deliv that Macy's just recently announced that they are expanding the footprint of stores in which Deliv is going to be working with them. So that is certainly a positive sign and we continue to believe that there is a significant role for all of our properties to play in the fulfillment aspect of an omnichannel retail business and it's moving apace.
So Rick, do you think it's more a function of just consumers not really realizing it exists to kind of get more critical mass?
I think it's just a function of getting the systems right, getting the retailers to the point where they're ready to fulfill from their store. That there's a big systems upgrade that's going on right now across the entire industry. And ultimately, it is going to be a seamless integrated experience for our consumers. And certainly, fulfilling from the store to their home is going to be part of that and Deliv can be part of that solution.
Okay. Thanks.
Our next question comes from D. J.
Bush. J.
Rice:] Thank you. Just one quick follow-up on Sears. Given the potential size of the capital spend for some of the Sears projects that you were talking about earlier, if Seritage can't meet its share of the capital requirements, is there an opportunity for you to put up a disproportionate amount of the capital to potentially grow your interest in the joint venture?
Well, that has to be a negotiated part of the deal. But it seems to me they've got the balance sheet to be able to do that. But I'm sure we could figure it out if they didn't.
And but is it correct? You assume you guys are controlling kind of the process and the strategies at each of the center?
Well, we're joint venture partners. It's both it's approval on both sides. I'd say, we're taking the lead on coming up with the plans and the redevelopment and the different uses. But they're riding co pilot with us.
And I would also say to you that we have significant another number of Steers stores that are not in our venture that are in Seritage. And when we meet with Seritage, we are actively working with them as we have done in the redeploy those spaces in a productive way. And an example of that is King of Prussia, where Dick's now open and PrimeMark is opening this fall. And between the 2 of them they will 100% occupy the former Sears.
And just a follow-up on that, Rick, with Seritage kind of taking control of the Sears space and the talks of other department stores potentially monetizing the real estate. Do you see any difference in the operations? I know it's early, but do you see any potential impact to the way you negotiate or lease or deal with the anchors if the landlord is no longer the retailer? No.
Okay. Thank you.
Yes. They don't have the infrastructure to get stuff done like we do. So I don't see the dynamics changing.
Thank you.
Sure.
Our next question comes from Ki Bin Kim.
Thank you. Just a quick follow-up. I know most of the conversations are always circling around upgrading quality and reinvesting in your better assets. But given that you do have some of your wealth tied into WPG and the history there and just because the stock price has gotten cheaper over the past year, is there a certain point where a lower quality portfolio might look interesting just because it's so cheap? Or should we just basically consider this like a permanent divorce?
I don't know even how to interpret your question. We spun off well over a year ago. They're a separate independent company. They're focused on the strip center and the B Mall business. You can hear that directly from them.
We do services for them that ultimately will go away mid next year. And their growth opportunities are better discussed with them. I think our focus as you have seen over the years is to buy the bigger assets or assets that we feel we can improve upon. But the primary focus is on our redevelopment or finding different vehicles for growth, whether it's Europe, whether it's HPC, etcetera and continuing to grow our business. I don't I said to you, I'm out of the big deal business.
We're not going to buy B assets. I think that's better for others to do given what's on our plate. But I'm not sure I answered the question, but I tried.
Yes. I mean you kind of did. I was just basically asking if there's a certain price where something like that would be interesting again, but
I think that business is better for others to do. But that's I'm not that's not up for me to decide.
All right. Thank you.
Sure. Our next question comes from Rich Moore.
Hey, guys. Good morning. Hi. My question David was kind of on the flip side of that. You have 200 assets.
If you rank them all, does it make sense to get rid of 190 through 200 that kind of thing?
Well, we're always doing that. We just do it. We don't do it ahead of that. So we are we have a deal that's closing mid August. That was a lot of work and we just didn't want to deal with it.
We're close on another deal. So yes, we do that all. Rich, I know if you looked at our history, we sold a bunch of stuff. So, yes, we'll always sell assets. Always part of it.
Okay. So, do you are you marketing things actively? Or is it just sort of an opportunistic sort of thing?
Yes. Well, we've marketed the 2 that I'm referring to were marketed yes.
Got it. Okay. And then on the lease term income you guys got this quarter was kind of big. And I'm curious I know you can't tell each quarter what's going to happen, but is that sort of something that's going to pick up here you think in the last two quarters of the year? Are there more discussions you're having on this kind of thing?
There could be a few deals here or there. But if you look at it year over year year to date, it's not all that different than 20 14. So it's lumpy, sure it's lumpy, but I don't think it's going to be all that different, Steve, right from No. About the same as 14%. Same as 14%.
That's a business that's lumpy in terms of quarter to quarter. It's actually relatively consistent year over year.
Okay, great. Thanks guys.
Yeah, no worries.
I would now like to turn the call over to David for closing remarks.
Okay. Thank you. Have a wonderful last few weeks of summer. Sorry to have ruined your Friday on summer Friday. Enjoy.
Ladies and gentlemen, thank you so much for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.