Good day, ladies and gentlemen, and welcome to the third quarter 2014 Simon Property Group, Inc. earnings conference call. My name is Sarah, and I'll be your operator for today. At this time, all participants are on listen only mode, later we will conduct a question and answer session. If at any time you do require operator assistance, please press star. Thank you. As a reminder, this 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 third quarter 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 Richard Sokolov, President and Chief Operating Officer, Steve Sterrett, Chief Financial Officer, Andrew 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 in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Due to the completion of the Washington Prime spinoff in the second quarter, we are providing operating statistics in our supplemental 8-K 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.
Thanks. Good morning. We had a productive quarter. We opened 2 new premium outlets in Charlotte and the Twin Cities in Minnesota, nearly 100% leased. They're both off to a great start. We successfully tendered and redeemed approximately $1.6 billion of notes and concurrently issued $1.3 billion of new notes, which extended our average duration and reduced our weighted average interest cost, we became the first 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, we continue to produce strong and operating and financial performance, both industry leading. 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 third quarter and the operating results from the WP properties in the prior year period, FFO diluted per share increased 14.2% year-over-year to $2.25 from $1.97 or $0.28 in total, 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 third 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 third 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 and August 14th respectively. Premium Outlets Montreal will open October 30th. 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 three of the best markets, Toronto, Montreal and Vancouver. We started construction just recently on two new Premium Outlets in two great markets, Tucson and Tampa, both scheduled to open in October of 2015. We will 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 a residential complex. We also opened Nordstrom and additional square footage at St. Johns Town 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 Phipps Plaza, both to open in early 2016. 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 enhance some of the most productive properties. We started construction on two expansions, one at Livermore Premium Outlets in the Bay Area that will add 185,000 sq ft and is expected to open in August of 2015. An expansion at the Colonnade at Sawgrass, expected to open December of 2015, that will bring 56,000 of high-end luxury retailers to this productive Mills center.
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 $2.2 billion over the next three years, all committed to and all underway. Turning to acquisitions. We signed a definitive agreement to acquire Jersey Gardens and University Park Village concurrent with the closing of the Glimcher acquisition by WPG. We're excited to add these two great properties to our portfolio when the deal closes in early 2015. We're also pleased with our investment in Klépierre, and as their largest shareholder, we're excited for them and their proposed transaction to acquire Corio.
Both of these transactions will be accreted to SPG's earnings, again, demonstrate our industry leading creativity to find unique opportunities. Capital markets, again, very busy. I told you about the $1.3 billion notes. We retired average duration of 1.7 that were at interest rates of 5.6%, and we also redeemed another $250 million in notes at seven and seven eighths coupon rate. Concurrently, we issued $1.3 billion 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 interest rate from 4.64% to 4.4%. In addition, as I mentioned, we are the first US REIT to establish a global unsecured commercial paper program. We received an A1/P1 rating from S&P and Moody's, respectively. The program has $500 million.
We can issue CP in dollars and euros, in fact, we already have. We placed $100 million of USCP, which we are borrowing at LIBOR plus zero to two basis points. Our Euro LIBOR, we also placed EUR 100 million at a Euro LIBOR rate of zero to seven 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 $5.15 in 2014, which is an increase of 10.8% compared to 2013, 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 first quarter of 2015.
Guidance, we raised our guidance to a range of $8.84-$8.88 per share. The midpoint of this raised range is an increase of $0.15 from our prior guidance after giving effect to the charge related to the debt extinguishment. 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. We announced Steve Sterrett's retirement early this year, we also said that we would source both internal and external candidates for the CFO job, Steve would remain the CFO through 2014. We announced that our 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.
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. Summing it up, we had a great third quarter. 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.
Great. Ladies and gentlemen, if you do have a question, please press star one on your phone. If it has been answered or you would like to withdraw it, press star two. Please press star one to begin. Our first question comes from Christy McElroy from Citi.
Hi, good morning, everyone. Michael's on the line with me as well. David, just to follow up on your comments around building outlet centers in major markets. In buying a center like Jersey Gardens, in what type of markets do you think indoor outlet concepts could work? Can you also provide your most recent thoughts around the growing number of outlet centers and stores opening closer to full price stores, what that means for retailers as well as the outlet industry overall in terms of future outlet centers?
Well, Jersey Gardens, 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. Christy, I wouldn't consider that an outlet center, so to speak. Unfortunately, we did have not such a good connection on your question, but I think you mentioned about the potential about outlets coming closer to major metropolitan marketplaces. Was that the question?
Right. Yes. Yeah, what that means for future outlet centers existing outlets.
Well, look, outlet business is very competitive. We have a good portfolio. Our results speak for themselves. 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, et cetera. That's what we're all about. That's what we're grounded in. We focus on lease by lease, market by market, deal by deal. We live in a very competitive market. We'll continue to hopefully do well.
Hey, David, it's Michael Bilerman speaking. There's an echo, I guess, when we're asking questions. I don't know if that's partially why, I think you have.
Sorry about that. I will check in to see if we can change that by the time the call is done.
No worries. I just had a question on global. You obviously have Klépierre two and a half years ago that you went into. You're leveraging Klépierre now effectively to buy Corio and consolidate in Europe. You have McArthurGlen that you made an investment in. You obviously have the outlet business that you've been growing internationally. All the Australian journalists think that they spotted your plane in Australia, which you denied.
Which is-
It's out there. 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?
Yeah, you probably, as strategic growth initiatives, how much time are you spending outside the U.S. versus inside the U.S.?
Well, look, generally, roughly, our outlet business represents 10% from Asia to Europe to McArthurGlen. Let's say it's around 10%.
International.
I'm sorry, our international business. Honestly, other than where you have the episodic nature of deals, I would tell you that now I work very hard, and don't feel sorry for me, okay? I would say to you that generally, other than the episodes of deal-making, I spend around the same amount of time. 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. 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. When you put it in the scheme of our roughly $90 billion asset base, we haven't made this huge, unbelievable bet internationally.
I spend roughly 10% of my time.
Right. I was thinking more so going into the future, whether that would 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 given that what we're doing in the U.S., that's probably not likely in any short or medium-term horizon.
Thank you.
Sure.
All right, thanks. Our next question comes from Omotayo Okusanya from Jefferies.
Yes. Good morning, everyone.
How are you doing?
Pretty good. Just a quick question on the development and redevelopment. It does seem like, with the supplemental this quarter, that the yield on expected development and redevelopment came down slightly, both for the mall redevelopment and the yield.
Yeah. You're very perceptive, and I'm glad you asked the question. King of Prussia is now a go deal. It's a big deal, and it did drop our redevelopment yield a little bit because I know you grow accustomed to Simon having 10% returns on every deal we do. Sometimes we're a little lower, but it's still very accretive when you look at where that property's valued today. We don't hand out or give out returns. It is a major development, redevelopment, I should say, and that did lower the return. On the outlet side, I'd say two things. We've taken out Charlotte and Minneapolis. We've added Tucson and Tampa. Charlotte and Minneapolis were very high double digits. Tucson and Tampa are on average 11. The others were higher than that.
When you bring that two together, it dropped it a touch. 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 two that are coming out dropped it oh, so small.
Okay. That's really more of a mix than.
Let me be perfectly clear. We have no execution issue. We have no cost overrun. It's just a mix changed by the addition of the plaza, the King of Prussia, and then the two outlets opened, and the two 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 MLV.
Hi, good morning. The re-leasing spreads also just ticked down a bit, I know there's some noise, but you've kind of been in an upward trend, it is a rolling 12. Just wanted to maybe get any comments on spreads, your outlook for them, whether the sales volatility has had any impact, That's the question.
Well, look, it wasn't that long ago, say, less than a year ago, that spreads were 14%, 15%. I will just tell you, from our standpoint, we're pleased with basically having nine and a half plus dollar spread. 17%, we have to look at this a little bit, on a longer term basis. I would say we're very pleased with 17%. 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 top NOI growth. We are executing this in clearly a cautious consumer-oriented environment. Obviously, last year, the consumer shut down a little bit because of weather, this, that, and the other thing. I'm pleased, I'm happy. I think we're executing very well.
We're going through, 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 10th, 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 in early next year. Until that's done, I don't have a prediction about what our spreads will be other than, we continue to believe our rollovers are under market in the future growth of our business. Industry leading opportunities, in my opinion, as 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. Yeah. Paul, it's Steve. I'd just add one thing. If you look at our 8-K, over the last eight quarters, we've consistently signed new leases between $63-$67 a foot. If you look at our lease expiration schedule, you can see that they're still in the mid-40s for the next several years. Still feel very good about marking the expiring leases to market.
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. It's not maybe potential upside?
Well, look, I know, Paul, you're smart, you want us to talk about next year. We have tremendous confidence in our business and our platform. The thing that I would have you rely on is what we've done year after year. As I said to you, we'll share our guidance early next year.
Great. Thanks.
Sure.
All right. Great. Our next question comes from Jeff Becker from Bank of America.
Good morning. I'm also here with Craig, who will have a question after me. My question was to, one, focus on Sears' decision to lease space to Primark. 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.
I'll give you two quick top of the head remarks, then I'll let Rick add whatever he wants. Look, on Amazon leasing space, all the details aren't out, but there's clearly a benefit for, the overused word, omni-channel, 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, they're clearly in the top 10. They may be as high as number 5, I would argue it's because of their physical presence that allows them to be so important in the online presence. You've heard it from retailers, the synergy between having the physical and the online presence, and now the move toward mobile and how it's all being integrated.
Clearly, we've seen a number of pure online retailers going to physical stores. 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. 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 two centers. We worked 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 re-lease 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. We'll continue to work with them on a collaborative basis that meets our needs and our shoppers' needs and theirs. 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 U.K. We have been working with them for over six months. We have already visited them at their headquarters and toured their stores where they operate. 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. I would also point out that we got involved with Primark early on, as our Klépierre team already had a pre-existing relationship with them.
Thank you. Before I pass on to Craig, he has a quick question. Congratulations, Steve, on your retirement. Craig has one question.
Thank you.
Great.
We've all concluded that we're all jealous, so we just want to go on record for that, all right?
Yeah. Us too.
Us too.
Okay. 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. It's very important for us to connect with them the way they want to be connected. I think they like mall shopping. 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. We're not going to ignore the baby boomers either, because they have a lot of spend. I think as millennials get older and we can continue to offer them entertainment, restaurant, and the right retailers in the properties and connect with them the way they want to be connected, it's a great opportunity for us. Rick, do you want to add anything?
The only thing I would say, to 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. It's a natural thing for us to try and exploit and enhance.
I was also noticing you used two outlets to do the initial rollout with Refinery29. How do those go?
Very well. That relationship's early, but, I'd say, generally, we're very pleased. We're creating buzz in that whole marketplace. Along those lines, Craig, we're making some initial investments in early-stage companies to enhance the environment. 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, 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. As you know us very well, that is not in our DNA. 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 Rosivach 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, 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. I think for all physical retailers, even with their online business, they have a multiplier effect that's very important that they see when they have the physical presence with their online consumer. They can describe it in great detail, and it's anywhere from 3x to 4x. The convergence is there. It's happening, and the good news is our retailers are combating, effectively, the pure online retailer.
The online retailer understands, beyond the first-mover advantage that someone like Amazon had, in order for them to really grow their business I think, and many believe, they need to have a physical presence because of the way it's moved to mobile and the multiplier effect that the omni-channel world is presenting itself in. That bears, I think, extremely well for us in creating the next wave of retailers. We see that just beginning. The interesting thing is, the online retailers have still got this unbelievable advantage, and we see it ourselves, in Nexus. 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 are 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 has balanced, that's going to level the playing field. Obviously, it would be great if we could get Congress to level that playing field, which they should be doing. 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 desktop really can't present the goods and 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.
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, 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, there are roadblocks in Congress, and we're not here to complain about the government, believe me. We just want a level playing field, the consumer is going to make that choice, we should let the states decide how they want to deal with it. It should be level, and at the end of the day, the best retailer, the best mall operator, will come out ahead.
Okay. Thank you.
It's got to be level. It's just not right.
Thank you.
Great. Our next question comes from Ki Bin Kim from SunTrust Robinson Humphrey.
Thank you. Steve, congrats and thanks for all your help over the years. You're welcome. A couple of quick questions. First, going back to the Sears topic. If Sears decides to 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, granted there's probably not going to be an 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. That is, yes. With respect to the upside, to the extent the transaction is being done by Sears within their store with their capital, it's their transaction. We certainly benefit in a position like where you're adding a Primark at King of Prussia or a Dick's at King of Prussia. That certainly will strengthen our overall offering for our shoppers, but not financially if it's being done inside the Sears store with Sears capital.
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. Just last question from me. On Klépierre, if I understand the deal correctly, it's going to be a full stock deal between Klépierre and Corio, which would, in effect, dilute your equity stake from the 29% roughly to sub 20%. I'm sure you'll let me know if I got this wrong. Any thoughts on re-upping your equity stake in Klépierre?
Well, you don't have it wrong, 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 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. We believe that scale in our business is really important because on all sorts of fronts, capital, retail relationships, ability to invest in the consumer experience, et cetera. We're optimistic that that investment will continue to be good for us and grow in value. I really can't tell you about whether or not, going forward, we'll increase our stake. We're pleased, and we think there's still opportunity going forward with our investment in Klépierre.
Okay. The reason I asked was it seems
I understand. I hope you understand why I couldn't answer.
No, I get that. It just seems like a nice area where you could put maybe $1.5 billion of additional capital at a very attractive, well, relative cost of capital, very attractive yield. That's why I asked. Thank you for your answer.
Yeah. Listen, the yield on our investment in Europe, both at Klépierre and McArthurGlen and in Asia, have been fantastic. They've been great yields. 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. Steve, congrats on the even earlier retirement.
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 him gifts. Don't bring him too much because we'd have to report it, given our conflict of interest policy. You can hug him and kiss him and whatever else you want. 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. 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. 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. 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. We just have a unique portfolio that will continue to perform. 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. Don't kid yourself. 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. As far as the Sears transaction goes, the fact that Eddie's 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? 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, 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, extrapolate it. I appreciate that. Just like they want to take the one Amazon space, if in fact they're doing it, and extrapolate it. I don't think you can extrapolate anything like that. On the Primark at 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.
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. 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. Wanted to just follow up on the Primark situation. We understand in Europe and London, there are primarily 35,000 foot boxes. In, I think, the initial seven, they're taking much larger footprints. I know you haven't announced direct deals with them, but do you anticipate, or would you envision more Sears sublease space, or do you actually think you could do direct deals with them? Would you envision them being an inline tenant if
Properties and others they won't, it'll depend upon the set of circumstances. Just because the King of Prussia is one deal that we consented to doesn't necessarily mean that's going to be the model on all the others. Steve, like I said, it's going to be a case-by-case scenario. 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. 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. It's all going to depend upon the set of circumstances that present itself with that property.
Okay, thanks. Part of your first answer got cut off, I apologize. I didn't hear the whole thing. Just in terms 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 segments within the portfolio?
They're certainly not a luxury, our higher end properties, probably not a great fit. I'm going to wait and see what their store looks like in the U.S., what kind of consumer they're delivering, we'll go from there. King of Prussia was relatively a simple decision for us because of where that Sears box is. I think, again, it's going to be dependent upon the circumstances. I hope you're hearing this, I guess we're having serious problems with our communication. I hope you can hear it, Steve.
No, I did. Thanks. Then, I guess, just last question. In terms of the home delivery, how has that progressed for the mall REITs in general, are there changes you're making for this upcoming holiday season and just what's been the early, I guess, maybe coming up on one year, how do you think that system and service are working?
The liv is just one of our efforts along those lines. I think we're pleased as a group. They've signed up a couple of major retailers. They're starting to do shipping this holiday season. 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. I think as an industry and individually, we're just scratching the surface there.
Okay, thanks. That's it for me.
Sure.
Okay. Our next question comes from Jeremy S. 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 a close to $18 million gain. Just any color on that sale?
No, just a couple assets that didn't fit the portfolio.
Okay. Thank you.
Sure.
Okay. Our next question comes from Haendel St. Juste from Morgan Stanley.
Hey, good morning. Thanks for taking my call.
Sure.
Dave, wanted to get an updated read from you on the upcoming holiday season. 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? 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, 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. They're still cautious, and that's how we're planning, that's how we're running our business. 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 or 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. I'm not in that business.
Care to share any comments on this year's back-to-school shopping season?
I think it was generally spotty. I think it certainly wasn't robust. I think it still represented a cautious consumer.
Okay, fair enough. Just wanted to confirm one of two things here. First, that the recent Jersey Gardens and University Park Village acquisitions will hit the same store in 1Q 2016. Then, any color on the lease termination fees? Was wondering if there were any other non-recurring items in the quarter beyond those, looks 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.
Right.
Look, listen, 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. As far as I can, having examined the financials extremely closely, nothing jumps out at me. The 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. Nothing to highlight, frankly.
Got you. Thank you.
Sure.
Our next question comes from Jeff Donnelly from Wells Fargo.
Good morning. 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 two 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 sq ft 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. 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 just sits there and owns? The fact of the matter is, I'm not going to give you a number on that. Again, not to put this in context, Sawgrass is a unique animal. When we took it over, if I remember the numbers more or less correctly, it was around $55 million of NOI.
Next year, now we did add a little bit of space here and there and stuff, next year, generally, I think it's going to do around 130-ish, where now we haven't gone lease by lease. There we might skip lease by lease because it could take us three days. 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. 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 million or whatever the rough number was.
We think we can drive more traffic to Jersey Gardens, though I firmly believe Glimcher's done a great job with that asset. 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, Steve, that could be your next career move. Actually, a follow-up also, David, 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 with proceeding on that project, or are you sort of past the point of no return, or is it you're just not as concerned about it?
Well, look, no, we're always focused on supply. We are not past the point of no return. 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. We are not at a point of no return, and we study the supply carefully. It's going to be a gut-check decision here, I would say, Jeff, in the next three or four months. Generally, we still feel very, very confident about it. It is a little bit different than what we've done historically, as you might imagine. We're 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.
We've got the in-house expertise. We also obviously hired the right people in Boston to help us go through that exercise. It's a good question. It's going to be a gut check time, but we are not past the point of no return. 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's a great long-term city, and Lord, I hope we have staying power. 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.
Maybe just the last question for Rick. I know you touched on spreads, and I'm sympathetic to looking at it over long term. As someone had asked earlier about the pullback and the dollar spread 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. It's basically a function of mix, what deals come in in a given period of time. We're still seeing a very focused retailer that wants space. Candidly, you can look at that with our occupancy and with all the activity that we have going on in the portfolio.
Yeah. Again, this is a good question. It's a good focus. I want you to understand how we think about the business. If we owned 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. We're always calibrating. We're not perfect at this. Believe me, we make mistakes all the time. We're always trying to calibrate the win-win. All right, how do you keep the retailer, who is our customer, in addition to the consumer, happy? How do we reach our financial goals? We are not getting the last dollar because we do multiple deals, multiple business with them year after year, day after day. We're never going to maximize rents if we just own one asset.
You just need to have that lens on. Yes, even with that lens on, we still outproduce 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 to 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. Let's put that in that perspective. Okay? That's why we have the opportunity to find other opportunities that even though we may not maximize the spread being $9.67, 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. There's always that balance, and you got to put it in that lens. That's important to understand that.
Yeah. 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. I understand it's not the plans that finalized as you've explained, can you give us kind of a ballpark number that project would entail in terms of total cost?
Yeah, sure. The total cost, Jim, is around $550. 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. We look at it gross, then we'd have condo sales to net and differential, though it's an art, not necessarily a science. That differential, and then we'd own the multi-family. That differential is roughly, don't hold me to these numbers, is roughly a $300 million-ish differential. That puts it in its kind of financial consequence box.
Okay, good.
Yeah. That number, from a return, as we look at it, that return is acceptable given what we're doing there. Okay? I'm not going to give you that number just yet, when we go, it'll be in our 8-K. 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. You had mentioned Primark, Zara, H&M on the second quarter call. Obviously, the European retailers, they're kind of categorized as fast fashion apparel. I guess Primark is more promotional. All three already have sizable market shares in Europe, where they operate alongside smaller, higher price point apparel retailers. We obviously have Forever 21, Uniqlo 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. Everyone is going to have to compete for that real estate. The bottom line is that it's taken H&M a very long time. They are now happily established and growing substantially. We're working with Zara, frankly, we have a lot of very established domestic retailers here that are very competitive and continuing to grow. The more people we have interested in our properties, the better off we are. Just enhances demand, our job is to do the right tenant mix and to price the space right. I think we've been doing pretty well so far.
It's a good question. 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. You put it all together, you got to make judgment calls day in and day out. It's a good question, it's an art, you got to be very thoughtful about that, Jim.
Finally from me, I may be asking you to repeat yourself, David, 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've been to the mall, in this case, the Sears box is not as well located as if it were in the middle of the mall. Our decision may have been a little bit different had it been. 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. We felt good about it, and we got Sears' cooperation on what we were trying to accomplish to improve the mall. 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 Chau from Deutsche Bank.
Hey everyone. Just a quick question on last quarter. You guys talked about a couple 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.
Yeah. 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'll be great. Besides the redevelopment, it'll be our first full price in quite some time. In fact, because every dollar is the same, it obviously doesn't do that. The fact is, we could do it, but it's about 10% higher. Yeah. 10% higher? 10% higher. Party shot. Yeah. He's leaving, so I wouldn't count any numbers that he says, but no.
Stephen Sterrett says it's 10, I think we could probably do a little bit more work and get a better number. It's a very interesting question. Got it. Okay. That was it. Thanks. Sure. Thank you.
There are no further questions, 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.