Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Fineman Property Group, Inc. Earnings Conference Call. My name is Sarah, and I'll be your operator for today. At this time, all participants are in a listen only mode and then later we will conduct a question and answer session. As a reminder, conference is being recorded for replay.
I would now like to turn the conference over to Tom Ward, Vice President of Investor Relations. Please proceed.
Thank you, Sarah. Good morning and welcome to Simon Property Group's Q3 2014 earnings conference call. I'm Tom Ward, Vice President of Investor Relations. 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 Steve Stearitt, Chief Financial Officer Andy Juster, current Treasurer and incoming Chief Financial Officer and Liz Zale, Senior Vice President of Corporate Affairs.
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 today's Form 8 ks filing. Both the press release and the supplemental information are available on our IR website at investors.
Simon.com. Also due to the completion of the Washington Prime spin off in the Q2, we are providing operating statistics in our supplemental 8 ks for the prior year period to show performance on a comparable basis excluding the Washington Prime Properties. For our prepared remarks, I'm pleased to introduce David Simon.
Okay. Thanks. Good morning. We had a productive quarter. We opened 2 new premium outlets in Charlotte and the Twin Cities in Minnesota nearly 100 percent leased.
They're both off to a great start. We successfully tendered and redeemed approximately 1 $600,000,000 of notes and currently issued $1,300,000,000 of new notes, which extended our average duration and reduced our weighted average interest cost and we became the 1st U. S. REIT to establish a global commercial paper program. We agreed to buy 2 high quality assets from the recently announced WP Glimcher deal with great growth opportunities.
And most important, we continue to produce strong and operating and financial performance both industry leading. Now let me talk about the results. FFO reported was $1.90 per share for those of you who updated your estimates to include the $0.35 per share charge related to our tender offers and redemption, the $1.90 exceeded the consensus by $0.05 per share. On a comparable basis, excluding the charge related to the debt distinguishment in the Q3 and the operating results from the WP properties in the prior year period, FFO diluted per share increased 14.2 percent year over year to $2.25 from $1.97 or $0.28 in total. And on the same basis, it's been increased 14.5% year over year to $6.48 from $5.66 Overall business conditions remained favorable, driving increases in our key operating metrics and cash flow.
We continue to see strong demand for space across the portfolio. Occupancy increased across the portfolio. Leasing activity is healthy. The mall and premium outlets recorded re leasing spreads of $9.67 an increase of 17%. Comp NOI increased 5.3% in the 3rd quarter, 5.4% year to date, again industry leading.
And over 95% of our domestic NOI is included in our comp NOI calculation. Total sales in our portfolio increased 2.8% in the 3rd quarter compared to last year and increased 2.6% for the trailing 12 months even with major redevelopment occurring at several of our premier properties. These results are a testament to the strength of our assets and their locations and the ability to once again continue to execute. New development, as I mentioned, Charlotte and Twin Cities both opened July 31 August 14, respectively. Premium Outlets Montreal will open October 30.
We expect that to be another great deal, very similar to what we built in Toronto, which is doing well, doing great. Construction continues on new premium outlet developments in Vancouver and in Southern New Jersey's Gloucester Township where the center will serve the Greater Philly area, both high quality major markets. In Canada, a year from now, we will have centers in 3 of the best markets Toronto, Montreal and Vancouver. And we started construction just recently on 2 new premium outlets in 2 great markets Tucson and Tampa and both scheduled to open in October of 2015. And we'll continue to focus our outlet projects in major and selective markets where we know there's a clear demand from the retailers that matter and provide solid returns to our shareholders.
Redevelopment just quickly, we opened the residential complex. We also opened Nordstrom and additional square footage at St. Johnstown Center and a new Bloomingdale's at Stanford Shopping Center. We also announced plans for the addition of luxury residents and an AC Hotel by Marriott to 5th Plaza to open in both open in early 2016 and construction for the residents will commence tomorrow. Additions to these mixed use will make our great real estate even better and continue to make our centers the places to be from shopping to dining to living.
Redevelopment expansions projects are ongoing at 31 properties across all three of our platforms in the U. S, Asia and Mexico, which expand and enhance some of the most productive properties. We started construction on 2 expansions, 1 at Livermore Premium Outlets in the Bay Area that will add 185,000 Square Feet and is December 2015 that will bring 56,000 of high end luxury retailers to this productive mill center. And as a reminder, construction continues on major redevelopment expansion projects at some of our most productive mall properties including, but not limited to Roosevelt Field, Houston Galleria, Stanford Shopping Center and our premium outlets including Woodbury, Las Vegas North and Chicago. When you put it all together, we have a total committed spend of $2,200,000,000 over the next 3 years, all committed to and all underway.
Now turning to acquisitions. We signed a definitive agreement to acquire Jersey Gardens and University Park Village concurrent with the closing of the Glimpshire acquisition by WPG. We're excited to add these 2 great properties to our portfolio when the deal closes in early 2015. We're also pleased with our investment in Klepierre. And as their largest shareholder, we're excited for them and their proposed transaction to acquire Corio.
Both of these transactions will be accretive to SPG's earnings and again demonstrate our industry leading creativity to find unique opportunities. Capital Markets, again, very busy. I told you about the $1,300,000,000 notes. And we retired average duration of 1.7 that were at interest rates of 5.6 and we also redeemed another $250,000,000 of notes at 7.7 8 coupon rate. Concurrently, we issued 1 point of notes with an average duration of 16 years and an average coupon of 3.6.4%.
This takes our senior notes from 6.3 duration to 7.6 duration and lowers our average rate from 4.64 percent to 4.4 percent. In addition, as I mentioned, we are the 1st U. S. REIT to establish a global unsecured commercial paper program. We received an A1P1 rating from S and P and Moody's respectively.
The program has $500,000,000 We can issue CP in dollars and euros and in fact we already have. So we placed $100,000,000 of USCP, which we are borrowing at LIBOR plus 0 to 2 basis points. And our euro LIBOR, we also placed €100,000,000 at a euro LIBOR rate of 0 to 7 basis points. That compares to our revolving credit of 80 basis points above LIBOR. We announced our dividend of $1.30 an increase of 8% including the November dividend we will pay to Simon shareholders 5 $0.15 which is an increase of 10.8% compared to what 2013 and does not include the dividend that if you've maintained your WP investment, which is essentially on a share adjusted basis of $0.50 per share.
We expect to raise our dividend again, of course, subject to Board approval in the Q1 of 2015. Guidance, we raised our guidance to a range of $8.84 to $8.88 per share. The midpoint of this range is an increase of $0.15 from our prior guidance after giving effect to the charge related to the debt extinguishment. Now let me take a deep breath, because obviously there's a lot going on. I wanted to just give you a real brief update on management team.
When we announced Steve Starett's retirement early this year, we also said that we would source both internal and external candidates for the CFO job and that Steve would remain the CFO through 2014. We then announced time Treasurer Andy would become our new CFO. Since Andy's announcement, Andy, Steve and the rest of our financial service team who by the way have on average 20 years of experience with SPG have paved the way for a smooth transition. And since that transition is now complete, effective in December, Andy will become our CFO and Brian McDade, now our Assistant Treasurer, will become our Treasurer. Steve will be available to us as needed for specific tasks.
So summing it up, we had a great Q3. We expect a strong year end. And of course, we're very focused on continuing to enhance the value of our properties and we're open for any questions.
Our first question comes from Christy McElroy from Citi.
Hi, good morning, everyone. Michael is on the line with me as well. David, just a follow-up on your comments around building outlet centers in major markets. In for retailers as well as the outlet industry overall in terms of future acquisitions?
Well, Jersey Gardens is we consider it more of a mills as opposed to an outlet center. It was essentially modeled after the mills. It appeals to a broad consumer base, but it's got the entertainment. It's got the big boxes. It does have a smattering of pure outlet retailers.
But I wouldn't Christy, I wouldn't consider that an outlet center so to speak. Unfortunately, we did have a not such a good connection on your question, but I think you mentioned
the question?
Yes. And what that means for OXXO REPRESENT, future OXXO REPRESENT is an existing outlet.
Well, look, outlet business is very competitive. We have a good portfolio. Our results speak for themselves. And I think we'll continue to be able to grow our comp NOI in our portfolio. I think in all of retail real estate, you can never stand still.
You've got to invest in the product. You got to make it better, whether it's outlets, full price, lifestyle, etcetera. That's what we're all about. That's what we're grounded in. Our we focus on lease by lease, market by market, deal by deal.
And we live in a very competitive market. We'll continue to hopefully do well.
Hey, David, it's Michael Bellerin speaking. And there's an echo, I guess, when we're asking questions. I don't know if that's partially why I think we have cranking things.
Sorry about that. I will check-in to see if we can change that by time the call is
done. No worries. So I just wanted a question on Global. You obviously have Club Pier 2.5 years ago that you went into you're leveraging Klepierre now effectively to buy Corio and do holidays in Europe. You have McArthur Glenn that you made an investment in.
You've obviously have the outlet business that you've been growing internationally. All the Australian journalists thinks that they spotted your plane in Australia, which you denied, but it's out there.
And I'm just
I'm curious how much time are you spending U. S. Versus non U. S? As you think about the growth assignment, how important is that international aspect going to be?
You mean me personally? Yes.
You probably as strategic growth initiatives, how much time are you spending outside the U. S. Versus outside the U. S?
Well, look generally roughly our outlet business represents 10% of our from Asia to Europe to McArthur Glenn. So let's say it's around 10%. International. International. I'm sorry, our international business.
And honestly, other than where you have the episodic nature of deals, I would tell you that I work very hard and don't feel sorry for me, okay? But so I would say to you that generally other than the episodes of deal making, I spend around the same amount of time.
But we have a great team
in our international. I have added a colleague that you probably haven't met that's done an unbelievable job to relieve the but I wouldn't say it's abnormally different than what the international business represents in terms of our investment. At the end of the day, we haven't made a huge the good news is we're in the money in everything that we've done. But when you put it in the scheme of our roughly $90,000,000,000 asset base, we haven't made this huge unbelievable bet internationally. And I spend roughly 10% of my time.
Right. And I was thinking more so going into the future whether that could change at all. And we see that percentage move up to a quarter of the company or 30% or 40% of the company.
I think the given that what we're doing in the U. S, it's not that's probably not likely in any short or medium term horizon. Thank you. Sure.
Our next comes from Tayo Okusanya from Jefferies.
Yes. Good morning, everyone.
How are you doing?
Pretty good. Just a quick question on the development and development. It does seem like with the supplemental this quarter that the yield on expected development and redevelopment came down slightly for the more redevelopment
I'm glad you asked the question. So King of Prussia is now a go deal. It's a big deal And it did drop our redevelopment yield a little bit because it's I know you grow accustomed to still very still very accretive when you look at where that property's value today. But we don't hand out or give out returns. So that but that it is a major development redevelopment I should say and that did lower the return.
On the outlet side, I'd say 2 things. We've taken out Charlotte and Minneapolis. We've added Tucson and Tampa. Charlotte and Minneapolis were very high double digits. Tucson and Charlotte I'm sorry Tucson and Tampa are on average 11%.
The others were higher than that. So when you bring that 2 together, it dropped it a touch. Now I will say to this, we're very conservative on our new development. Both Tucson and Tampa are double digits, but the way they're coming in and the other 2 that are coming out dropped it oh so small. Okay.
That's really more of a mix that
fits in
itself. Let me be perfect and clear. We have no execution issue. We have no cost overrun. It's just the mix changed by the addition of the Plaza, the King of Plaza and then the 2 outlets opened and the 2 new ones coming in.
Great. That's very helpful. Thanks for the explanation.
You're quite welcome.
All right. Great. Our next question comes from Paul Morgan from
Hi, good morning. The releasing spreads also just ticked down a bit. And I mean, I know there's some noise, but you've kind of been in an upward trend and it is a rolling 12%. So just wanted to maybe get any comments on spreads, your outlook for them, whether the changes in whether the sales volatility has had any impact? And that's the question.
Well, look, it wasn't that long ago, say less than a year ago where the spreads were 14%, 15%. So I will just tell you from our standpoint, we're pleased with basically having 9.5 plus dollar spread and 17%. I mean, I wouldn't we have to look at this a little bit on a longer term basis. So I would say we're very pleased with 2017. It's higher than it was a year ago.
Yes, it is a little bit lower than the Q1 and Q2. I certainly wouldn't overreact on that on any basis. The re leasing spreads are driving our industry leading 5.4% year to date comp NOI growth. And we're do we are executing this in a clearly a cautious consumer oriented environment. And obviously last year the consumer shut down a little bit because of weather this that and the other things.
So I'm pleased. I'm happy. And I think we're executing very well. We're going through our in terms of how we look at that next year, very simple as you know. We've been doing this 20 years.
We had the pleasure of starting November 10, I believe, going through each and every mall, lease by lease, deal by deal, which rolls into our plan, which we'll share with you early next year. And so until that's done, I don't have a prediction about what our spreads will be other than we continue to believe where our rollovers are under market in the future growth of our business. Industry leading opportunities in my opinion has been reinforced by year after year after year of continual unabated outperformance.
The only thing I would also add is that our occupancy cost remains very moderate, which shows you that we still have plenty of room to grow those rents.
Yes. Paul, this is Steve. I'd just add one thing. If you look at our 8 ks, over the last eight quarters, we've consistently signed new leases between $63 $67 a foot. And if you look at our lease expiration schedule, you can see that they're still in the mid-40s for the next several years.
So still feel very good about marking the expiring leases to market. So, yes, I mean, I know you haven't given guidance, but that kind of high teens number is there's no reason to think that that's not sustainable, if not maybe potential upside?
Well, look, we're I know you're Paul you're smart and you want us to talk about next year. We have tremendous confidence in our business and our platform. And the share our guidance early next year.
Great. Thanks.
Sure.
All right. Great. Our next question comes from Jeff Spector from Bank of America.
Good morning. I'm also here with Craig, who will have a question after me. My question was to focus on Sears' decision to lease space to Primark. Also Amazon's announcement to open a store in New York City, we've been getting a lot of incoming calls questions on those announcements and what that could mean. If you could just provide some thoughts on those announcements and maybe where you think things continue with Sears and their leasing efforts?
Well, let me I'll have I'll give you 2 quick top of the head remarks and then I'll let Rick add whatever he wants. Look on Amazon leasing space, I'm not it's all the details aren't out, but there's clearly a benefit for the overused word omnichannel bricks and clicks, however you want to describe it, there's a real benefit. In fact, it's very interesting when I see Sears as an online retailer depending on which study you look at. I mean, they're anywhere from they're clearly in the top 10. They may be as high as number 5.
And I would argue it's because of their physical presence that allows them to be so important in the online presence. Physical and the online presence and now the move toward mobile and how it's all being integrated. So and clearly, we've seen a number of pure online retailers going to physical stores. So, the it's got to be in the equation for a retailer to have a physical presence. I don't think there's any question in that.
And as our retailers have gotten more sophisticated in the online world, I think that's going to play to our benefit. On the Sears leasing, we have one that we've consented to in King of Prussia. That was part of their agreement to consent to our ability to expand the 2 centers. We work very collectively to do that. I think Sears would be the first to tell you that in certain markets, in certain stores they don't underperform or in fact they have too much space and they will look to release some of that space or sell some of the real estate.
We still think they have a physical presence that's going to be important to them. And we'll continue to work with them on a collaborative basis that meets our needs and our shoppers' needs and theirs. And we expect at the end of the day for both of us to benefit from that.
What I would add is that focusing on the Primark side, they're a highly productive iconic retailer in Europe and the UK. We have been working with them for over 6 months. We have already visited them at their headquarters and toured their stores where they operate. And we're very excited about their entry into the U. S.
We anticipate that there will hopefully be several other opportunities both within our portfolio or other Sears stores which they have already alluded to. And I would also point out that we got involved with Primark early on as our Clay Pierre team already had a pre existing relationship with them.
Thank you. And before I pass on to Craig, he has a quick question. Congratulations Steve on your retirement. Craig has one question.
We've all concluded that we're all just okay. So we just want to go on record for that, all right?
Yes, us too.
Okay. I guess I was just going to ask what were some of the takeaways from your shopping block events? And just maybe some general thoughts on the millennials and the malls? Well, look, I think they're an important customer base. I think they represent a unique opportunity for us.
The millennials represent a bigger population than the baby boomers. So it's very important for us to connect with them the way they want to be connected. I think they like mall shopping. And we're going to experiment and do lots of things oriented around them to continue to make them an important consumer base in our properties, but we're not going to ignore the baby boomers either because they have a lot of spend. So I think as millennials get older and we can continue to law firm entertainment restaurant and the right retailers in that in the properties and David's
point, the research echo David's point, the research that we've done has shown that the millennials are in fact very supportive of the mall channel and are very much focused on going there. So it's a natural thing for us to try and
exploit and enhance. I was also noticing you used 2 outlets to do the initial rollout with Refinery 29. How do those go? Very well. So that relationship's early.
But I'd say generally we're very pleased. We're creating buzz in that whole marketplace. And our along those lines Craig, we're making some initial investments in early stage companies to really to enhance the environment. But I think all the good news is that there's a lot that we can do to enhance our environments and we are as committed as anyone to do that. We've got the balance sheet, the capital that hopefully the creativity and the willingness to take risk to do that, which all companies I think need to be in this position to do.
It'd be easy for us to rest on our industry leading growth. But as you know us very well, that is not in our DNA. And so we're going to do it from marketing to leasing to development and everywhere in between. Thank you. I agree.
Thank you.
Our next question comes from Andrew Rosivik from Goldman Sachs.
Hi, good morning. This is actually Caitlin Burrows. Retailers have been open about the need for a physical presence to showcase even though much of their sales are generated online. Can you talk about how you capture the economic value of a store that doesn't necessarily run through that store's cash register?
Well, look, there's it's that's in our leases, even if it's done in the store, but fulfilled online that's part of our sales. That's not really too much of an issue. And I think for all physical retailers, the important and even with their online business, they have a multiplier effect that's very important that they see when they have a physical presence with their online consumer. And they can describe it in great detail on it. It's anywhere from 3x to 4x.
So the convergence is there. It's happening. And the good news is our retailers are combating effectively the pure online retailer. And the online retailer understands for them beyond the first mover advantage of someone like Amazon had in order for them to really grow their business, I think and many, many believe they need to have a physical presence because of the way it's moved to mobile and the way it's the multiplier effect that the omnichannel world is presenting itself in. So that bears I think extremely well for us in creating the next wave of retailers.
We don't we see that just beginning. So the interesting thing is the online retailers have still got this unbelievable advantage and we see it ourselves in Nexus. And giving that benefit even though they should be collecting that use tax instead of sales tax, but taking advantage of that benefit that the consumer is not necessarily entitled to. As that has begun to swing because a lot of them have nexus now with warehouses and the like. As that is balanced, that's going to level the playing field.
Obviously, it would be great. We could get Congress to level that playing field, which they should be doing, then I think that's going to reinforce the advantages of bricks and mortar because at the end of the day, when you're looking to shop the mobile device or even the desk top really can't present the good services that are available with that retailer that a physical environment can. Yes, they can save you the sales or use tax. Yes, they may have an advantage in convenience, which is slowly being dealt with by our retailers through pickup in store, ship from store. But once that sales tax, use tax advantage is eliminated, which I think it will be through NEXUS or the government, we'll see.
I think our retailers are going to be really damn competitive.
Just on the topic of equal playing field. So Amazon now charges sales tax in 23 states. What else is remaining to be done on the topic of tax parity? Is there anything that you guys are doing?
We're trying. But there are roadblocks in Congress and we're not here to complain about the government, believe me. But we just want a level complaint, level playing field and then the consumer is going to make that choice, but they shouldn't be they and we should let the states decide how they want to deal with it. But it should be level. And at the end of the day, the best retailer, the best mall operator will come out ahead.
It's got to be level. It's just not right.
Thank you. All right. Great. Our next question comes from Ki Bin Kim from SunTrust Robinson Humphrey.
Thank you. And Steve congrats and thanks for all your help over the years. You're welcome. So a couple of quick questions. First of all going back to the Sears topic, if Sears decides to lease their sublease their space on their own, do you guys generally have veto power or do other anchors at the center have veto power?
And is there any chance that you can partake on the upside assuming they're granted there's probably much kind of upside in rent?
Well, there's two questions there. We certainly have substantial ability to control what Sears can do with their stores based on existing leases or reciprocal easement agreements. So that is yes. With respect to the upside to the extent the transaction being done by Sears within their store with their capital, it's their transaction. But we certainly benefit in a position like where you're adding a prime market King of Prussia or a DICK'S at King of Prussia that certainly will Do other anchors have a say?
Depends on the document.
Do other anchors have a
say? Depends on the documents and depends on the scope of what Sears is contemplating with their building.
Okay. Thanks for that. And just last question for me. On Clay Pier, if I understand the deal correctly, it's going to a full stock deal between Clay Pier and Koryo, which would in effect dilute your equity stake from the 29% roughly to sub-twenty percent. And I'm sure you'll let me know if I got this wrong.
Any thoughts on re upping your equity stake in Clay Pier?
Well, you don't have it wrong, but I'm not going to answer that question. We like the investment. It's been a very good investment for us. We think as a reference shareholder and as and being on the Board, we've added real value. And we are in a obviously, we do believe in the merger or acquisition of Corio and we support it.
And we believe that scale in our business is really important because it on all sorts of fronts capital, retail relationships, ability to invest in the consumer experience, etcetera. So, we're optimistic that that investment will continue to be good for us and grow in value. But it I really can't tell you about whether or not going forward we'll increase our stake. But we're pleased and we think there's still opportunity going forward with our investment in Clay Pier.
Okay. I mean the reason I asked was it seems
I understand. And I hope you understand why I couldn't answer.
No, I get that. It just seems like nice area where you could put maybe $1,500,000,000 of additional capital at a very attractive well, relatively cost of capital, very attractive yield. So that's why I asked. Thank you, Adrian.
Yes. Listen, the yield on our investment in Europe and both at Klepierre and MacArthur Glen and in Asia have been fantastic. I mean they've been great deals. So and that's what's helped drive our industry leading growth.
All right. Thank you.
Great. Our next question comes from Alex Goldfarb from Sandler O'Neill.
Good morning.
Doing well. And Steve, congrats on the even earlier retirement.
Yes. I just want to go on record. You will have him. You can hug him and kiss him because he will be going to NAREIT. You can bring in gifts.
But don't bring him too much because we'd have to report it given our conflict of interest policy, but you can hug him and kiss him and whatever else you want to buy him a drink, whatever else you want to do with him.
As long as he gets plenty of strokes on the course, that's what matters. So question on Japan. I'm going to try to channel my inner David Harris. If we read the headlines correctly, retail sales in Japan have been impacted because of the increase in sales tax And yet your productivity over there is actually up year over year. So is it just a nuance of when the tax hit?
Or is there a difference going on from what the newspapers are reporting versus what's going on at your outlets?
Well, I think our outlets are just so uniquely positioned. And with the increase in that there, clearly you had some forward spending and then it did have an initial monthly impact, but then it's kind of leveled back. I just think the consumer there is going to look for even more value given the higher VAT rate. So we just have a unique portfolio that will continue to perform. But it's affected retail sales generally, but it's really good to be in the value space there with great product and a great retailer lineup.
But don't kid yourself. I mean, when you increase your VAT, you're going to affect consumption. We're just a little bit better positioned to deal with it than some other property types.
Okay. And then as far as the Sears transaction goes, the fact that Eddie is going direct with retailers, does this sort of indicate that basically the gap is too wide versus what he thinks his boxes are worth and what the mall landlords think it's worth and therefore he's just going direct? Or do you think that we will see some more trades? Because it would seem like the value of his boxes is maximized if you guys can get control of it and do what you want to do with it versus him doing something with it?
Well, look, I look, we there's a we've had a let's see 50 some odd year relationship with Sears through a lot of ups and downs and good times and so on. We expect to continue to have an excellent relationship. I don't think anything's off the table buying, selling, leasing, subleasing, working cooperatively. Nothing's off the table there. Again, I think the market wants to take one scenario extrapolated.
I appreciate that. Just like they want to take the 1 Amazon space if in fact they're doing it and extrapolate it. I don't think you can extrapolate anything like that. And we will they were on the prime market King of Prussia given where they are situated in the mall and what they had already done with the one level, which we cooperated, we felt like Primark would be a very good replacement where they're situated, plus we needed their cooperation. What we are trying to accomplish and it happened to be that we were absolutely aligned in that set of circumstances and we think we created a win win.
And I would expect given the 55 year history that we'll continue to find those kind of situations with Sears in most cases.
Okay. Thanks a lot.
All right. Great. Our next question comes from Steve Sakwa from ISI Group.
Thanks. I wanted to just follow-up on the Primark Mark situation. We understand in Europe and London, they're kind of primarily 35,000 foot boxes. And in I think the initial 7, they're taking much larger footprint. So I know you haven't announced direct deals with them, but do you anticipate or would you envision sort of more
properties and others they won't and it will depend upon the set of circumstances. And just because the King of Prussia is one deal that we consented to doesn't necessarily mean that that's going to be the model on all the others. So Steve, like I said, it's going to be a case by case scenario. I would be if their model is a success here, which certainly by every indication of the presence they have in Europe, you would potentially anticipate, but others have come here and have not done as well. But let's if it is, then I think it'll be a combination of all the above where there'll be some consents with Sears on subleases.
We'll lease directly. We'll redevelop pads and the like. And it's all going to depend upon the set of circumstances that present itself with that property.
Okay. I guess part of your first answer got cut off. So I apologize, I didn't hear the whole thing. Just in terms of kind of the type of tenant they are, the price point, do you envision that they could sort of fit into a large part of the portfolio? Or do you see them in different kind of segments within the portfolio?
Well, I don't they're certainly not a luxury. So our higher end properties probably not a great fit, but I'm going to wait and see and see how what their store looks like in the U. S, how they what kind of consumer they're
delivering
and we'll go from there. In the King of Prussia was relatively a simple decision for us because of where that Sears box is. And but I think again it's going to be dependent upon the circumstances. And I hope you're hearing this, but I guess we're having serious problems with our communication, but I hope you can hear it Steve.
No, I did. Thanks. And then I guess just last question. In terms of kind of the home delivery, how has that sort of progressed for the mall REITs in general? And are there changes you're making for this upcoming holiday season?
And just kind of what's been the early, I guess, maybe coming up on one year? How do you think that system and service are working?
Well, the LIV is one of just one of our efforts along those lines. I think we're pleased as a group. They've signed up a couple of major, major retailers and they're starting to do shipping this holiday season. And I do think over time, there clearly is going to be the ability to deliver or pick up a lot of mall goods at the mall environment. And I think we're as an industry and individually, we're just scratching the surface there.
Okay. Thanks. That's it for me.
Sure.
Thanks. Our next question comes from Jeremy Ess from EBS Security.
Hi. Thanks for taking my call.
Most of my questions have been answered. Just one quick one. It looks like you sold an asset this quarter and recorded close $18,000,000 gain. Just any color on that sale? No.
Just a couple of assets that didn't fit the portfolio.
Okay. Thank you.
Sure.
Our next question comes from Haendel Singh Juste from Morgan Stanley.
Hey, good morning. Thanks for taking my question. Sure. Dan, wanted to get updated read from you on the upcoming holiday season. You I guess some of your peers noted last quarter that the consumer was in a bit of a cautious state.
How would you assess that mood today? And in conjunction with that, I'd love to hear your thoughts on how this year's back to school shopping season materialized versus your expectations? And what your read on the consumer pulse today and your expectation for the approaching holiday?
All right. Well, simplistically, consumer, I believe is continues to be somewhat cautious. The good news is there's an environment where I think at some point in the near future, they will be less cautious, lower oil or lower gas prices, better job environment, hopefully wage growth, continuation of lower interest rates, just some of those out there. But they're still cautious and that's how we're planning. It's how we're running our business.
I don't make a I am not equipped to make a forecast on the holiday season. Others might, I will not. There's lots of forecasters out there on the holiday season. The ones that I see are generally feel like it's going to be last year. Weather hopefully won't replicate itself the way it was longer season to name a couple.
But I don't I'm not in that business.
Karen, is there any comments on this year's back to school shopping season?
I think it was generally spotty. I mean, I think it certainly wasn't robust and I think it still represented a cautious consumer.
Okay. Fair enough. And just wanted to confirm one or two things here. First that the recent Jersey Gardens and UPB acquisitions will hit the same store in 1Q 2016. And then any color on the lease termination fees?
I was wondering if there were any other non recurring items in the quarter beyond like $0.02 about lease termination fees and the debt prepayment charges?
Simply on Jersey Gardens, it wouldn't be in our comp NOI for 2016. That's correct. Correct. And look, listen, we've got we given the company we are a big company. So we're always going to have other income that could be higher or lower quarter to quarter.
Same thing on the expense side. But as far as I can having examined the financials extremely closely, nothing jumps out at me. The lease income lease settlement income probably in the scheme of the total year is not all that different than some other previous years. It does ebb and flow. We've always got a little bit of extra income here and extra expense year in and year out given the nature of our business.
But nothing to highlight frankly.
Got you. Thank you. Sure.
Our next question comes from Jeff Donnelly from Wells Fargo.
Good morning. Good morning, Jeff. Question about just I guess I'd call it the value proposition of SPG Asset Management. If you were to benchmark the in place rents to the 2 malls that you were buying from Glimcher to similar malls that you already own, what do you think the delta is in revenue or NOI per square foot that you could realize under your management? Is there a way to estimate or quantify that for us?
Well, very good question, Jeff. I would say to you generally, we don't buy any asset if we don't feel like we can improve it. And there's so that's kind of a theme that we have regardless of what we do, whether it's new development, redevelopment or importantly acquisitions, what can we do to beat the growth rate that may exist if that asset is just sits there and owns. But the fact of the matter is the fact of the matter is I'm not going to give you a number on that. I mean, I people are again, not to put this in context, but sawgrass is a unique animal.
But when we took it over, I remember the numbers more or less correctly, it was around $55,000,000 of NOI. And next year, now we did add a little bit of space here and there and stuff. But next year generally, I think it's going to do around $130 ish. Now we haven't gone lease by lease. There we might skip lease by lease because it could take us 3 days.
But I think the fact that we were able to do that not only helped our investors, but also helped the consumers and the retailers because I think they did a lot more business with it in our hands. So we invested more in it. We drove the tourism. We got better retailers. We got more consumers.
The retailers did more business and everybody was copacetic even though Mills had done a good job at $55,000,000 or whatever the rough number was. So we think we can drive more traffic to Jersey Gardens, though I firmly believe Glimcher has done a great job with that asset. That we're experts in tourism. It's right by Newark Airport. I think we can figure out how to get a few more buses from Newark to go to Jersey before they go to Rick and I will flag them ourselves if we have to make the numbers work.
Maybe that could be next career move. Actually a follow-up also David is as it relates to the project you're looking at Copley Place in Boston, there's a lot of residential product in the pipeline in Boston for sale as well as for rent. Does that give you any pause proceeding on that project? Or are you sort of past a point of no return? Or is it not as concerned about it?
Well, look, no, we're always focused on supply. We are not past the point of no return. And we're still working on approval rights both within the appropriate agencies in Boston, but also we have to work through some of the retailer issues. So we are not at a point of no return and we study the supply And it's going to be a gut check decision here, I would say, Jeff, in the next 3 or 4 months. Generally, we still feel very, very confident about it.
But that the it is a little bit different than what we've done historically as you might imagine. We are really good experts on supply understanding supply and retail, what's going to get done, what's going to have an impact, competitive world, very competitive world in retail. This one's a little bit different. We hired a couple of great experts to do Copley. So we've got the in house expertise.
We also obviously hired the right people in Boston to help us go through that exercise. But it's a good question. It's going to be a gut check time, but we are not past the point of no return. And as you know, in real estate, whether it's office, retail, whatever, there's always announcements of supply. The real question is what gets built and who gets there first and who's got staying power.
I will tell you this, it's an iconic asset. It's only getting better. The design is fantastic. Boston is a great long term city. And Lord, I hope we have staying power.
So we've got a lot of stuff on our side of the equation that gives us confidence that if we do pull the trigger, we will execute.
And maybe just a last question for Rick. I know you touched on spreads and I'm sympathetic to looking at it over long term. But as someone had asked earlier about the pullback and the dollar spread was came back a little bit slightly this quarter. Is that just a function of mix maybe in the quarter? Or was there any kind of pushback from retailers in light of the softer retail sales?
There really has been no pushback from the retailers in terms of their demand and it's basically a function of mix, what deals come in, in a given period of time. So we're still seeing a very focused retailer, the one space and candidly you can look at that with our occupancy and with all the activity that we have going on in the portfolio.
Yes. Let me because again this is a good question. It's a good focus. But let me let you I want you to understand how we think about the one property, we could absolutely maximize rent to the last penny because at the end of the day, that's all we would care about. Jeff, we believe in repeat business with our retailers.
So we're always calibrating and we don't we're not perfect at this. Believe me, we make mistakes all the time. But we're always trying to calibrate the win win. All right. How do you keep the retailer who's a is our customer in addition to the consumer happy?
How do we reach our financial goals? But we are not getting the last dollar, because we do multiple deals, multiple business with them year after year, day after day. And so we're never going to maximize rents if we just own one asset. And so you just need to have that lens on. Yes, even with that lens on, we still out produce everybody else, but we're not trying to get to the point of no return.
We're trying to find that balance. And I'll be the first tell you sometimes we don't do it. Sometimes we make mistakes. But we're always trying to find that balance for future positive relations with our clients going forward, just like any other business. So let's put that in that perspective, okay?
But that's why we have the opportunity to find other opportunities that even though we may not maximize the spread being 9.6 $7 Is that the right number? It could have been $10 maybe that $0.33 we picked up because they're going to do this that and the other thing for us. So there's always that balance and you got to put it in that lens. That's important to understand that.
Yes. Thanks guys.
Sure.
Our next question comes from Jim Sullivan from Cowen.
Thank you. Just a quick follow-up to Jeff's question on Copley. And I understand it's not the plan that finalized as you've explained. But can you give us kind of a ballpark number that that project would entail in terms of total cost?
Yes, sure. It's around the total cost Jim is around 550. Dollars And again, the vision that we have on the top roughly 10 floors would be condo sales. We're also expanding Neiman's as part of it and other retail. So we look at it gross, but then we'd have condo sales to net.
And differential though it's an art not necessarily a science. That differential then we'd own the multifamily. That differential is roughly don't hold me to these numbers, is roughly a 300 $1,000,000 ish differential, but that puts it in its kind of financial consequence box.
Okay, good.
Yes. And that number from a return as we look at it, that return is acceptable given what we're doing there, okay? And I don't want to I'm not going to give you that number just yet, but when we go it will be in our 8 ks. But that's essentially how we're thinking about the deal.
Good. Thanks for that. Just a kind of follow-up question on the earlier discussion about Primark as well. And you had mentioned Primark's our H and M on the Q2 call. And obviously the European retailers they're kind of categorized as fast fashion apparel.
I guess Primark is more promotional. And all 3 have already have sizable market shares in Europe where they operate alongside smaller higher price point apparel retailers. Also we obviously have Forever 21, Uniglo growing aggressively here. I'm just curious if we assume that these large format retailers continue to grow their share of apparel sales, do you view that as a positive or a negative regarding the same property NOI growth prospects for the domestic Simon portfolio?
It's Rick. I think that we price our real estate based on what we believe is the value of the real estate. And everyone is going to have to compete for that real estate. The bottom line is that it's taken H and M a very long time. They are now happily established and growing substantially.
We're working with Zara, but frankly we have a lot of very established domestic retailers here that are very competitive and continuing to grow. So the more people we have interested in our properties, the better off we are just enhances demand. And our job is to do the right tenant mix and to price the space right. And I think we've been doing pretty well so
far. Yes. But it's a good question and it's again, it's a little more art than science. You got to weigh the traffic that they may generate versus the competitive nature they may put certain retailers under and whether or not they're bringing a different consumer in. So you put it all together and you got to make judgment calls day in and day out.
So but it's a good question and it's an art and you got to be very thoughtful about that Jim.
Okay. And then finally for me and I may be asking you to repeat yourself David, but I think you did cut out on this. In terms of the Primark deal at King of Prussia, you mentioned it was I think you said an easier decision because of the specific location. Can you just clarify what you meant by that?
Well, if you have been at a mall, in this case, the Sears box is not as well located as if it were in the middle of the mall. And our decision may have been a little bit different had it been. And it's just so it's really a location issue. And the power of that mall is shifting in terms of kind of the focal point given our expansion is now we're actually under construction. And it was really we felt good about it and we got serious cooperation on what we were trying to accomplish to improve them all.
And we did think that because of their position, Primark would be great. They'd drive traffic down to that wing.
Okay, very good. Thank you.
Sure.
All right.
Our next question comes from Vincent Zhou from Deutsche Bank.
Hey, everyone. Just a quick question on last quarter. You guys talked about a couple of deals on the development side that were not outlets. Just curious if there's anything to update on that front?
You mean on full price?
Right.
Yes. We are getting closer not quite there, but we're working diligently on one ground up full price development that I'd say over the next short period of time that we'll be making an announcement on. It's not quite everything's done, but we're optimistic that this will be a partnership that we're looking forward to working on, but it's not quite all done. Handshake's in place, but stay tuned on that. We think it will be great.
That will be besides the redevelopment, it will be our 1st full price in quite some time. And And in fact, because every dollar is the same, it doesn't really it doesn't obviously doesn't do that. But the fact is we could do it, but I don't have it at the top. It's about 10% higher. Yes.
10% higher? 10% higher. Steve Starrett's He's leaving, so I wouldn't have any numbers that he says. He's there and says it's 10. But I think we could probably do a little bit more work and get a better number, but it's a very interesting question.
Got it. Okay. That was it. Thanks. Sure.
Thank you.
Well, there are no further questions. So I'll turn it back to David Simon for closing remarks.
Okay. Thank you and look forward to seeing you in the future.
Ladies and gentlemen, that concludes today's conference.