Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Simon Property Group Earnings Conference Call. My name is Dominique, and I'll be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I would now like to turn the conference over to Ms.
Shelley Doran, Vice President of Investor Relations. Please proceed.
Good morning, and welcome to Simon Property Group's Q1 2013 earnings conference call. Please be aware that statements made during this call may be deemed forward looking statements and actual results may differ materially due to a variety of risks, uncertainties and other factors. You may refer to our SEC filings for a detailed discussion of forward looking statements. Please note that today's call includes time sensitive information that may be accurate only as of today's date, April 26, 2013. Reconciliations of non GAAP financial measures to the most directly comparable GAAP measures are included within the earnings release or the company's supplemental information package that was included in this morning's Form 8 ks filing.
The supplemental is available on the Simon website in the Investors section. Participating in today's call will be David Simon, Chairman and Chief Executive Officer Rick Sokoloff, President and Chief Operating Officer and Steve Steart, Chief Financial Officer. I will now turn the call over to Mr. Simon.
Good morning. Our results for the quarter were strong. FFO was $2.05 per share, up 12.6% from the Q1 of 2012. Our FFO exceeded the first call consensus at quarterend by $0.05 per share. For our malls and premium outlets, comparable property NOI growth was 4.8% and that was off a 5.7% increase in Q1 of 2012.
Tenant sales were up 5.3 percent to $5.75 per square foot. Occupancy up 110 basis points to 94.7%. Base minimum rent per square foot was 3% higher and our re leasing spread was a positive 13.4% or $7 per square foot. We were very active in the debt markets during the quarter closing or locking rates on 13 new loans, totaling approximately $2,000,000,000 of which our share was $1,300,000,000 The average rate was 2 point 9 2 percent and a weighted average term of a little over 8 years. Let me turn to the all important development activity.
First of all, we opened Phoenix Premium Outlet Centers in Chandler, Arizona on April 4. The center is 100% leased, opened with an impressive collection of stores. I will not name them. Rick will if you're interested. Several high profile stores will be opening in the coming weeks.
And the good news is the shopper response has been very strong and many merchants reporting as one of their best outlet openings in the last couple of years. Shishui Premium Outlets opened on April 19. This is our 9th center in Japan. It's located 15 minutes from Narita International Airport serving Greater Tokyo. The center opened with large crowds and 70 media outlets opening.
And we expect this to be a terrific center serving the area visitors to Tokyo given the proximity of the airport. Significant redevelopment projects were completed during the quarter at Apple Blossom Mall, Quaker Bridge Mall and South Hills Village. Several significant projects are on track for completion in 2013 including expansions at Sawgrass Mills, Dail and Mall, Seattle Premium Outlets, Orlando Premium Outlets at Vineland, Walt Whitman Shops and the re grand opening of the shops at Nanuet and University Towne Plaza in Pensacola. Redevelopment expansion projects including the addition of anchors and big box tenants are underway at 44 properties in the U. S, 2 in Asia.
Our share of these costs is approximately $1,000,000,000 and the blended estimated rate of return is approximately 11%. We have 3 Premium Outlet Centers under construction opening in the Q3 of this year. St. Louis Premium Outlets in Chesterfield, Missouri opening August 1, which is 96% leased Toronto Premium Outlets in Ontario, Canada opening August 22, which is 85% currently leased Busan Premium Outlets in Korea opening in late August. As we highlighted in the press release, demand for space in all of these centers has been exceptional and we expect to be fully leased at opening.
We also have at least 8 additional new premium outlet projects in North America in various stages of predevelopment. Clay Pierre reported its Q1 revenues this week. You can read about them. So I'll be brief other than to say that rents were up for the quarter, a total of 3.4% reaffirmed to 2013 guidance. We've now owned our stake for 13 months.
Progress has been made in several aspects of the business. They have sold €760,000,000 of assets. They've simplified their business with the elimination of the Segurce sub brand as well as the ongoing sale of the office portfolio. They're focused on operations. We've added a new CEO.
They're generating additional Simon brand venture type revenues as recently evidenced by the Coca Cola partnership. They've strengthened their balance sheet through recent financing activities. And they've opened 2 great malls in San Lazar Paris and Emporio in Malmo Sweden. And I think if anyone has had the opportunity to visit it visit those centers, you'll see that the company has clearly the capability to build 1st class 21st Century Retail. Today, we announced a dividend of $1.15 per share for the quarter.
Over the past 6 quarters, we have increased the common stock dividend each quarter as we've been playing catch up to our taxable income. Our growth rate in our dividend has been over 31% over the last 2 years. Importantly, Importantly, we anticipate subject to review and Board approval increasing our dividend as we anticipate our taxable income continuing to grow. Guidance today, we increased the top and the bottom line of our 2013 FFO guidance to a current range of $8.50 to $8.60 per share. This is an increase from $0.10 from the initial guidance in February of 8.40 dollars to $8.50 per share.
Strong operating performance is the driver of this increase. Occupancy, reasonable mall and premium occupancy costs of 11.3% and strong rent spreads give us good momentum. Finally, 13 is off to a good start and we're ready to answer any of your questions that you'd like to pose.
And your first question comes from the line of Jeff Spector of Bank of America.
Hi. It's Craig Schmidt here.
How are you doing?
Real good. It sounds like you've made real progress on your dispositions at Klepierre. Maybe you could give some more color on what's left to do as well as maybe some of your refurbishings that you've done
in the
portfolio and any successes you've had in bringing new retailers to your Klepierre portfolio?
Well, first of all, they will continue to sell non core assets as well as the office portfolio. So they've got a couple of the office deals that are close to being signed up including their headquarters. And then they'll continue to sell kind of the smaller non core assets, which frankly are very stable and solid centers, but they don't have the extension capabilities that we're interested in pursuing. And they've done a great a number of extensions like Clai Sui in Paris on the east side of Paris near the airport that I think represents the ability to take a smaller center and expand it. And on the retail front, we're continuing to solidify that.
The operational side of the business is the true upside. The coordination among retail, what we do at Simon Brand Ventures, how we operate the centers is the next chapter in the story. Obviously, that takes some time. We've had to add to the personnel ranks. We've had to set the strategy.
And we're pleased with what's going on there and I think there'll be more to come.
And are you surprised that your ability to push rents given the general difficulty in Europe?
Look, I don't run this day to day. There some of these questions are better asked for them. We are not the ones pushing the rents. We're providing strategic advice and helping them focus on what is important in their business and also showing them how we run our business so they can run their business. I'm not surprised that a number of those countries have stability in cash flow in tough economic times.
I think what you've seen here in the U. S. Is that the same thing happened here for us in very tough economic times. And the one area that where they're having the most difficulty is in Spain. And that is a focus for the company, but that continues to be something that is affecting their cash flow to some extent.
It's because Spain continues to be under pressure for basically all retail real estate owners that have real estate in Spain.
Great. And then I just I was impressed with your 96% leased in St. Louis. Do you know how much we'll open in August?
We should be in the 90s. There's always a few laggards, but that's a real number and we should be in the 90s. I mean, even though we'd love to open every center at 100% leased and operated. It does sometimes it does take time. Phoenix is a great example.
We're 100% leased. We were in the kind of the low 90s to be at opening. But in the next couple of months, we'll be 100 percent occupied. Same thing will happen in St. Louis.
There may be a couple of slow people, but we are 96% leased.
Okay. Thank you.
Sure. Your next question comes from the line of Christy McElroy of UBS.
Follow-up on Craig's question about the outlets. Can you disclose the expected yields at Chandler and St. Louis for 20 13? And maybe discuss some pre leasing progress at Columbus and Charlotte?
Well, the look our yields in the outlet business continue to be attractive. These will be double digit yields unquestionably And Chandler will be probably north of 10%. St. Louis will be atorabove10%. And in addition as many probably know, we're looking at Phase 2 now.
And obviously, as we bring that online in St. Louis, we will the yields will go up. But they're both north of 10%. They are both north of 10%. Now on your question on Columbus, let me just say this.
Columbus is a very competitive market. There's a lot of folks that are have competing real estate there and sites. So we'll see. We may or may not be the victor in that competition, but we're working to continue to try and move that forward. Charlotte is basically a go deal.
So with us in Tanger, we expect to start construction in the next 2 months. We're very excited about that project. I'm not going to tell you what the yield is because I don't know what Tanger does, but it will be very, very good. The retailers are very happy that we have put together our joint venture. They're very excited about going it and it's got to be at least over 50%, 60% pre leased.
Not that we really need it because the one thing that we know is we have 80 premium outlets in the world I think. So we don't Christy, we don't really need to pre lease like some others that might know because we kind of know whether or not we can lease it. But Charlotte's Go starting construction here shortly and we're racing to do a 14 opening.
Okay. And then I know that you continue to do quite a bit of anchor and big
box repositioning. Can you talk a little bit about what the
retailer demand is like getting that space back from a re tenanting perspective? And are sale leasebacks of anchor space something that you would consider if a major tenant came to you looking to raise capital?
Hi, Christy. It's Rick Sokolov. The demand is as good as it has ever been. And I think that that can be referenced by the number of spaces we have available. In our mall portfolio, we literally have 6 35 department stores and 1% of them 6 or 7 are vacant.
And that's the lowest it has been and as long as I can remember. We actively deal with every one of our malls to keep a running list of people that have demand to get in there. And we are in a constant dialogue with our anchors that we've identified that we have the potential of getting back to try and make them better. And if you look over the years, I think we've added almost 175 boxes and anchors over the last 4 years in the portfolio. So we've been very active and it's making them a lot better.
I do not believe we would really be interested in entertaining sale leasebacks.
And are you able to sort of quantify maybe a range of what you might pay for vacant anchor box space, Class A Mall versus Class B Mall?
No. Each deal is very, very depends on a lot of individual characteristics of each deal. It's not really something that you can generalize about.
Hey, guys. It's Ross Nussbaum. One final question. The 4.8% same store NOI growth you generated this quarter, if I think about that relative to the occupancy gains you had and the re leasing spreads over the last year, it kind of feels like there's something else that's helping that number. Is there a piece there that I'm not thinking about?
Well, I mean it partly is good sales growth. Partly is that we're very focused on operating to the best of our ability. I would point out last quarter, quarter Q1 2012, we had 5.7% comp increase. So that 4.8% on top of 5.7% is just running the company as well as we can. But we're never satisfied.
We're always trying to improve. And that's what we're all about.
Appreciate it. Thanks.
Your next question comes from the line of Paul Morgan of Morgan Stanley.
Good morning. Hello. Good. Thanks. On your re leasing stats, the opening number went from $53 to 50 $9 And I guess it's a 12 month trailing average.
And so I mean how much of your is Q1? Because I'm trying to seek just kind of forecast that number out and it was a big jump given that it's a rolling average.
Yes. Paul, this is Steve. Some of it is mix. In the mall business especially, there are more leases that are tied to traditional retailers fiscal year end, which is January 31. And in fact, I think if you look at the supplemental, as I recall, the remaining square footage that we have expiring in 2013 is in the 3000000 to 4000000 square foot range where over a normal year like 2014, 2015, it's 8000000 to 9000000 square feet.
So we have dealt with a lot of the especially regional mall expirations that occurred January 31.
Okay. Okay. Great. That makes sense. And then, I mean, can you maybe just characterize, I mean, you provide a lot of you list all your redevelopment projects and it looks there's like $37,000,000 in there and you have about $700,000,000 elicited in the sub, which is I mean it's only about $20,000,000 per project, but it looks like there's some that are kind of adding new space and should represent I guess a more sizable chunk of that.
And I'm trying to see should we expect to see more expansions of malls given the demand and given your spreads and resulting in some lumpier projects that pull that number up? Are there lumpy projects in there that represent a big share of that $700,000,000
The lumpy projects are basically hopefully ready to start shortly. And I'm not going to list you just from recall. I mean the lumpy ones you'll start to see later on this year and in 2014 and they include as Roosevelt Field, the Copley, Del Amo, Woodbury, King of Prussia to name Houston Galleria to name 4 or 5 or 6 lumpy bigger chunkier ones. You're right. A lot of what we have now is they run the $20,000,000 $30,000,000 $40,000,000 But you have something like the Anuet which is $150,000,000 project and Walt Whitman is around $80,000,000 So you got little you got it all over the board.
But the lumpier bigger ones, we are essentially in our first phase of Del Amo. We will begin our first phase of Roosevelt Field here in the fall. Stanford, Rick whispered to me, thank you. We're finalizing everything there to as many of you know to relocate Bloomingdale's, build them a new store and then we take over their existing Bloomingdale store and carve it up for small shops. So the bigger to lumpier ones really are hopefully beginning to start second half of twenty thirteen.
And twenty fourteen will be a huge year for us twenty fifteen as well as these bigger lumpier ones come on stream.
Hey, Paul, it's Steve. I would just add one thing to that, because it gets lost in the sauce sometime. But between David mentioned Woodbury, but he didn't mention Desert Hills, Orlando Premium, Las Vegas North, those are 4 premium outlets that all to north of $1,000 a foot in sales where we are adding significant amount of space. And so we're those are projects that will come on in the next year or 2 as well.
And as Steve said those are on average are about $100,000,000 a pop. Yes.
So I mean that number could should really double probably in a year from now.
It's going to balloon. And I think what we have said and what we've said and will say again is that this is our number one priority. This is the huge focus for the company. This is where we spend most of our time. And the good news is we recognized this that the world was not going to end a little bit ahead of others.
So we're in the midst of doing this now. Woodbury is going to start right after this. Most people after their Q1 earnings take the afternoon off. Right after this, Rick and I are going to spend 2 hours on the final approval of Woodberry. It's $168,000,000 deal and it's going to really, really be cool and it's really going to start and we've really got the approvals and blah, blah, blah, blah.
And then in the afternoon, we do take a lunch break. Rick demands to go out to lunch. I like to eat at my desk. It's a source of much conflict in the organization. But right after that, we're approving, I don't know, 20 some odd different mall deals.
So number one priority. We're glad we're in the midst of this now and a lot of good stuff to come.
Would you think those
blended stabilized returns are going to be around I mean, you've got 9%, you've got 14% for the Premium Atlas in there. Is that going to change much?
Yes. Look, I think they'll all be very, very accretive to our company. I don't as soon as the project gets approved and we put it in there, you'll see the return.
Okay, great. Thanks.
Thanks.
Your next question comes from the line of Cedric Lechant of Green Street Advisors.
Thank you. David, when we look at occupancy that continues to grow in your portfolio and we're past some previous peaks, where do you think it stabilized occupancy?
Well, actually I've been very impressed with our leasing team that they've been able to achieve these occupancy levels. So I think the focus now is it's always good to on the margin to continue to increase occupancy. But Cedric, I do believe that the focus now will be making sure that the mix is the best that it can be. But I've actually been very pleased and impressed with our leasing team and the amount of their ability to drive occupancy. I don't tell them because then they'll take the afternoon off where Rick and I won't.
But now seriously I've been very pleased with the results that they've been able to produce.
And Cedric the only thing I would add is that the number that I'm thinking about is higher than I would have told you perhaps a year ago, because what has emerged in our sector now is you have a number of very high fashion, highly productive tenants like Zara, H and M, Uniqlo, Topshop that are demanding bigger spaces. And because they're all bigger spaces that's going to create incremental demand for our space that could enable us to perhaps drive the percentage higher than would otherwise be the case absent that demand.
Okay. So as you look at your ability to change the mix, what can it do for your ability to push rent in the centers?
Well, look it's relatively straightforward. The better the tenant does in terms of sales per square foot, the greater they have the ability to pay rent. And so it's really that simple. So as we do that, we're hopeful that rent will follow or be part of the initial equation.
Okay. And turning maybe to densification. You've got you talked about co Play earlier. It seems that you could add non retail uses depending on city. How many more malls do you own where you think you could add non retail users and densify the sites?
Cedric, it's Rick. Right now, we're working on adding hotels at 5 different projects and we're working on adding multifamily at 4 additional ones. We're under construction with a multifamily project at Firewheel in Garland, Texas. So we still think there is very good demand for it. What we have found is that when we add these hotels and multifamily or condo components in our projects, they are yielding the higher room rates for hotels and monthly rentals for multifamily because people very much enjoy the mix aspects of the community.
So we think we bring an incremental value to those components and we're going to continue to pursue them.
Yes. I'd just roughly put Copley aside because that's the big one. But there are at least 12 to 15 in each area that are of immediate focus. That doesn't mean it's limited to those say 24 to 30, but there are there is a list of those 12 or so in each category being hotel or and or multifamily that we're very focused on. In fact, we're going to approve this afternoon South Dale more than likely.
I'm still struggling with like the returns, okay, because our returns are higher than the multifamily guys get. But so I'm still trying to I'm still struggling with some of those deals. But I do think there is a pipeline to take advantage of that and it's good for the real estate too generally.
Great. And just final question. In your annual shareholder letter, you talked about continuing to lead the industry and promoting the malls and marketing medium. How much more can you do? How much more income can you generate from that aspect of the business?
Well, I think it's also just more than income in that I could be wrong here, but I do think we're on the verge of a technology backlash. And our focus is creating the mall environment where people we had a meeting on kind of a brainstorming meeting on this Monday. And something was said that was very clever is that people today are looking down. They're not looking up. And what happens in the mall environment is we do give them the opportunity to look up and around and not just down, down meaning at your mobile device and everything else.
So I do think that mall has a unique ability to be part of that maybe next wave of trying to create social responsibility, community relations, community feel and part of the process where we actually look up as opposed to look down. So it's a big focus for our company. The revenue side, obviously, we love cash flow. So we're cash flow junkies. So we're going to look to that too.
But there's a unique ability for us to really kind of create community in our properties beyond that. And I think that's a huge mission for us to try and achieve. It's a long term prospect. Lots of ideas there. Very hard to sort out exactly how we will execute it.
But and the good news is just to segue into the e commerce, I mean, you're seeing more and more pure e commerce companies opening stores, because they know that people frankly want to look up. They don't always want to look down. So a great example is this Warby Parker, this Eyeglass thing that was kind of the new hot.com thing and they're opening physical stores. Now whether they go to the malls or not, I'm not who knows? But the fact of the matter is, I think they recognize that people want to touch, feel, look up.
So our mission is to get people to look up not look down.
Great. Thank you.
Thanks.
Your next question comes from the line of Quentin Zelielly of Citigroup.
Hey, good morning. Good morning.
It's been a while since you combined the operating statistics of the mall and the outlet business together. Can you maybe talk a little bit about how each is performing some of the similarities and differences? And then as we look at the 79.6% of your NOI that comes from malls and premium outlets. Could you sort of give us a rough sense as to what the percentage is coming from outlets versus malls?
Sure. I'll just say this. Steve can answer the second one. The in the real estate recession or I should say the not the real estate recession, because frankly having lived through 90 to 90 3 this was child's play. But if you look at the general economy, our outlets clearly outperformed the malls during that 'nine, 'ten and 11 period.
And now I will say Quintin generally in terms of sales growth and comp growth they're relatively close. The outlets are still marginally better, but the difference between those two has narrowed considerably. Now with respect to the breakout, do
you Yes. And Quentin, if you actually in our year end tune that's posted on the website, we do break it out for you.
And I don't have it in
front of me, but as I recall, the malls are 55% and I think the outlets are 25%, because when you put the outlets in the mills together, essentially about a third of our NOI comes from the value side of the business.
Okay. And then maybe just in terms of the ongoing success that you're having with Klepierre in terms of improving operations and capital and asset sales and so forth having an influence. Are you spending a lot of time looking at a similar style of public company investment, where you take a similar minority stake and get some board representation. Is that something that's increasingly attractive to you given the success of Klepierre?
We have thought about it from time to time. It's not a big focus for us. But it could lend itself to a situation here or there. But Klepierre was the reason we made the investment the way we did was for all sorts of reasons including risk management. So it really would depend on the circumstances.
It's not something that we're out looking to do, but in the right kind of context it's conceivable.
David, it's Michael Bilerman speaking. How are you? It sounds like if you're really a cash flow junk, you should put advertising in the floors. That way you can get more money when people are looking down.
We tried that, I think. We've done that. We did vinyl footprint. Right. It didn't go over well.
It was great for the kids. Then when I saw the adults using it, I thought it was a little tacky.
Thinking about Klepierre, I guess, we're we've elapsed the sick status for them to effectively go private. So how should we think about your stake and how you want to evolve over time, whether you want this to be a stub outstanding, whether you want to bring it in house, whether you want to bring a joint venture partner in? How should we think about how that evolves now that the at least the REIT issue the French REIT issue is lapsing?
Well, Michael, I would love to answer that question, but I respectfully won't. We are pleased with the investment. We're making good strides. We need to make more strides. And I said the big problem with the company today is somewhat out of their control and that's just dealing with the Spanish economy.
But we're pleased. But I really as much as I'd like to talk about that kind of stuff, I really can't. It is a public company. I've got to respect that situation. So we're pleased.
They're making very good strides. And I would say operationally it things do take longer there than they would say here. But we've been pleased with kind of the blocking and tackling that the company is undertaking. They still need to do a lot more. We've been pleased with the progress they've made to date.
And then just going back to the rental spreads on Page 19 of your sup. And Steve you answered that the retailer calendar year end at January 31, but I guess I'm still having a hard time if March 31, 2012, you had $7,000,000 of trailing at $54 $49 expiring and now you're threethirty one-three, 7,400,000 square feet at 59 versus 52 and even twelvethirty onetwelve 8,000,000 square feet at 5,348. It just seems like there's that the opening and closing are just much, much higher this quarter. But whatever happened in the Q1 of 2013 was dramatically higher rents than at any point over the trailing 12 any other quarter.
No. And Michael, that's true. But if you also look, there were dramatically portfolio continues to get better. And so the rents that we were able to do leases at 3 years ago, 5 years ago, 8 years ago were better and those are all now rolling off. So but mix is clearly an issue or a component of it.
And I would just point out that we have in our portfolio U. S. Portfolio not including the mills or actually it does include the mills. We have 121 properties that do over $700 a foot. So
121. That
average $100 a foot of sales. 121. So and as Steve said, Rick said, we're really trying to make those properties better and better in all sorts of different ways. So that's going to lead to more rent growth. But again, I would not overreact to one really good looking statistic in one particular quarter.
Just like I would ask for forgiveness to the extent that 1 quarter we have a statistic that looks bad. I'm sure part of it's mix. We can drill down to it a little bit more. But demand is good and we got a reasonably good portfolio.
Thank you. Sure.
Your next question comes from the line of Alex Goldfarb of Sandler O'Neill.
Good morning. And just going I guess sort of back to Christy's question on department stores and just thinking about JCPenney in particular especially as they brought in AlixPartners. Your sense of as you guys obviously speak to them other department stores, how much do you think the massive Ala Moana trade has warped department store managements in thinking what their boxes are worth? Or do you think most people are pretty realistic in what they think their real estate is worth?
Look, I can't speculate what Ala Moana how that has affected the judgment of department store or retail CEOs. I would point out though since Ala Moana there just hasn't been a lot of box trades. And you can come to your own conclusion as to why maybe because they don't want to sell or maybe there's a spread between the bid and the ask. I don't know. But I can't speculate on how they think about that at all Alex.
Okay. And then going to Klepierre, while I know that you don't want to comment directly on their operations, can you just give us a sense as you guys think about the growth and what Simon can bring to their platform, the split between improving NOI versus the bringing in the Simon brand venture type revenue stream and increasing that ancillary income, How would you think about the growth? Is more of it just going to come from NOI? Or is there a big opportunity you think to really improve the ancillary income that that could be a meaningful contributor?
Well, again, I'm not going to quantify that. It's not something I can do. Look, we I think the important thing to put in stake. We can show them how we run it and then they need to apply it. And we brought in the company has brought in some talented people to learn from what we do assuming we do what we do reasonably well.
I mean, I'm not telling you we do what we do is great, because I always think it can get better. But we assuming we do what we do reasonably well, we can show them how we do it and how we think about the business, but they've got to do that. They're the ones that need to do it. And it's not easy to do when the economy there is sputtering along and in some cases still contracting I. E.
Spain. But they get what we're doing. They want to run the company better. They are running the company better. And I think as kind of I said in my letter, I do think there's growth there as soon as the economy of Europe generally stabilizes.
And I do think the economy of Europe will stabilize. It's not going to despite my personal view of it, it's not going to continue to contract as it has over the last year or 2. So I mean but it so like the long well, it was a long winded answer, but I'm not going to speculate exactly how much NOI growth there is. But I do think there's improvement in how they run the business. And I think they would agree and I think that's their big focus in the upcoming years.
Okay.
And then just finally for Steve in the and thank you for the new supplemental. On page 23 in the CapEx and Development page, there's an item called conversion from accrual to cash basis. And if you don't have this offhand, we can discuss offline. But just curious what that is?
Well, it's simple, Alex. We give you a CapEx number and but there are CapEx numbers where we have accrued obligations like we've got a construction bill, but we haven't paid it yet. Okay. And all we're doing is giving you both the accrual number and the cash number because some people look at it and want the accrual number, some people want the cash number.
Okay. That makes sense. Thank you.
Sure. And by the way that's been in there for Long time. Long time.
Your next question comes from the line of David Harris of Imperial Capital.
Hey, good morning. Good. It's a little bit early this morning guys.
I know. It's we're off our rhythm. We're usually at 11%, but we deferred.
Yes, yes. Listen, this is a question, David. See if you feel how comfortable you feel answering this. Is there any thoughts as to what Simon might look like if we were to lose the tax break?
I don't worry about that at all, David. I just REITs have been around for 60 years. It's not going to happen. I just can't imagine it's going to happen. As you know, it's revenue neutral if in fact there was some change.
I think most politicians understand the importance that commercial real estate has in stabilizing the general economy. The last thing in the world they would want to do is create some kind of economic uncertainty. They've seen the fact that this the downturn and what commercial real estate how it handled itself and the amount of liquidity that REITs brought to the table to stabilize pricing and not create kind of what happened in the early 90s. And as I said, I have lived through that as has Rick.
Me too.
You too. Some others. It's not going to happen. But by the way, if it did, we would be best positioned to take advantage of it, because as you know our cash flow was significantly above our dividend payment. Look, I've always fantasized I probably shouldn't say this.
So I've always fantasized we pay out $1,500,000,000 a year in dividends. $1,600,000,000 what is the number now? $1,600,000,000 $1,600,000,000 Imagine if I had that amount of capital for 2, 3, 4 years. So we would do some great stuff with it. But David, that's an aside, it's not going to happen.
REITs have performed. They've been very important to the economy. They've been great for individual shareholders. They've helped stabilize pricing. No way.
Okay. So no plan B planning at this point?
Well, we don't need to. But like I said, if the sun hits the moon and hits another galaxy, we will be better positioned than anybody else.
Well tax breaks aren't granted in perpetuity. So I think the question is out there. A similar question actually related to Klepierre. I mean obviously there's been a lot of talk about tax increases and public policy responses that may be somewhat more fluid in Europe today. Any notion at all that the tax status of the company like Klepierre is being questioned?
Not at all.
Okay. Okay. All right. Very good. Good luck with the hoops, Steve.
Thank you, David. Okay.
Your next question comes from the line of Michael Mueller of JPMorgan.
Yes. Hi. When I go back to the leasing spreads again, not to beat a dead horse here, but the 13%, so the 300 basis point pickup. I mean, when I first looked at that, what went into my mind was you're starting to roll some shorter term post downturn leases and you're going to get the is probably going to be sticky going forward? Or is it just purely an anomaly where Q2 rolls around and for some reason we're back down to 10%?
Mike, it's Steve. Let me take a shot at it and Rick can weigh in or David. I think if you look at the we give you five quarters worth of information. And the one thing you can see from the 5 quarters is that the spread has increased over each of the 5 quarters. The magnitude the mid 4s to $5 a foot.
So and as I said, some of that is lumpy because of Q1 expirations, But the fact is deal flow has been getting better, quality of deals has been getting better, occupancy cost has stayed relatively low. So as you want to think about it as mark to market or however you want to think about it, there is there should be an upward bias. Is the upward bias from $5 to $7 I think that's hard to say, but the trend has been good.
Okay. And then, I guess, secondly, just curious about what are the thoughts on the pace of rolling out outlets in Brazil today compared to what you were thinking 6 months or a year ago?
Let me answer that if I could. I think both as you know we've looked diligently in Brazil and diligently in China. Both markets for us have proven to be very, very difficult to find the right project with the right riskreward ratio. And hence, we have nothing I mean we're still looking with VR malls. We're still hopeful that eventually we'll be able to do something there.
China is proved to be a market that I continue to really question whether or not anybody can make money investing there, especially us. And so I am hopeful that over time, we'll find the right opportunity with BR in Brazil, but that's taken longer than we anticipated. And then China is really, really on the back burner. And I have no regrets about it being on the back burner.
Got it. Okay. Thank you.
Sure.
Your next question comes from the line of Vincent Zhou of Deutsche Bank.
Hey, everyone. Thanks for taking the question. I just want to go back to J. C. Penney real quick.
Just obviously given the transition at the top there, just wondering if you could share your thoughts on move itself. But then also given their sort of return to more traditional marketing tactics that they've been known for at the ground level. Have you seen any change in traffic levels and that kind of thing since the move?
Well, let me just mention, we're pleased that Mike Holman is back. I think he will he's obviously a very competent seasoned thoughtful CEO and leader. And given all the turmoil that Penny was going through, a perfect choice to help stabilize the company. And we have great respect for him and his ability. And I would say generally having walked a number of penny stores with David Contis and Rick over the last month of stores.
So the stores are looking better. So I think they're headed on the right track. It's very hard for me to speculate exactly how it's all going to shake out. But the bottom line is the organization needed some stability and thoughtfulness. And I think Mike's perfectly the right guy to provide that.
Okay. Thank you. And just I want to go back to some comments you made about the departments the anchor space I think 635, only 6 or 7 vacant, so some of the lowest vacancy you've ever seen there. But then you also kind of said that I think I heard no interest in sale leasebacks. Just curious if you could comment on what kind of demand is out there for additional anchor space?
Obviously with the vacancy low that's good. But I mean are you seeing much demand for anchor space? It just seems like most people are moving to the outlet channel in terms of the traditional anchors?
This is Rick. There is a great deal of demand for the space. And if you look at the kinds of tenants that we're adding to the properties, we're adding Wegmans, Fresh Market, Decks, Theaters, Health Clubs. There is a substantially broader number of categories of retailers that want to take advantage of all the traffic and math that we are creating at these properties. So we have again more demand today than we have had historically from a broader collection and variety of retailers than we've had in the past.
And all of that is helping drive I think the growth of our properties and the lack of vacancy among our anchor boxes.
Okay. And I guess, do you have enough data at this point for some of these non traditional anchors anchor malls as far as how the performance of those malls compares to historically the traditional set up or mix?
I think that all of our anchor components are part of the mix that we have at the property. They are not going to be game changing, but they obviously want to be at properties that are consistent with their growth and in some instances it's merely a function of whether we can accommodate the physical configuration. Wegmans needs almost 4 acres of land for a single level building. Well, in a lot of instances that can't happen. So it's really less a function of that kind of correlation and more a function of can we continue to give our trade area shoppers more reasons to come to our properties and that's what we're all about.
Okay. Thanks guys.
Sure. Thank you.
The next question comes from the line of Rich Moore of RBC Capital Markets.
Hi, good morning guys. On the bankruptcy front and the lease termination front and that sort of side of the equation, it seems that things are pretty good. I guess, Rick, how would you characterize the outlook for lost tenants over the next, I don't know, 3 to 9 months?
Well, if you look historically, our bankruptcy numbers have been up a little in 2013 just because of bakers. But overall, the credit profile of our tenants has never been better. Our receivables, as Steve can elaborate, have never been in better shape. Our bad debt is stable. So we're feeling good about the credit profile of our tenants and more importantly their rent paying ability, which continues to be pretty strong.
Yes. Rich, this is Steve. Just to put numbers on kind of Rick's overall statement, I think at the end of the Q3, we were chasing $42,000,000 of receivables that had been billed, but not yet been paid. And that's on about a $7,000,000,000 annual base of revenue that we bill either on the consolidated or the JV property. So you're literally talking about less than 2 days' worth of revenue.
And the credit profile, as Rick said, is very strong right now.
Yes. I don't think my calculator decimals go out that far Steve. So okay, good. Thanks. And then on the outlets, I think didn't you guys do the development of Houston and Tanger's doing Charlotte?
And then how do you split up Columbus? So I guess who's driving Columbus is what I'm curious.
It's in Charlotte, we've actually switched the roles that we had in Texas. And we're in Texas, we were the developer and we jointly leased and they run the center. In Charlotte, they are the developer again Columbus is a competitive marketplace. But in Columbus, we're switching back to the other deal. So it's been partnerships are very common in the real estate industry.
All sorts of people have partnered. Developers over the years have always partnered. We have a very good relationship with Tanger. And so it's just kind of been natural to say, okay, this is the way it was here. We're going to swap there and then go back here.
And then if there's another deal to do, it would probably swap back to the way we're doing Charlotte. So long winded, but Charlotte will be a the Charlotte premium outlet and then Tanger will be branding Columbus, if in fact we're the successful developer.
Okay. Thanks. And then David, how many more do you think of the 8 that you have going you would do with or that you're thinking about for North America you do with Tanger?
Well, in the 2 or in the 8 and that being of the 8 North America that includes Canada by the way and we are actually looking at another site in Mexico. And we've seen very good progress in our outlet in Mexico City. But of the 8, 2 of those are Charlotte and Columbus is of the V8.
Okay. And no more planned yet with Tanger?
No, sir.
Okay, good. Thanks. And then the last thing Steve, the recovery ratio, I think it was pretty much a high this time this quarter. I mean is it going to stay up where it is?
Well, I mean, Rich, I tell you in a weird sort of way the recovery ratio, the way those of us who have been around a while have historically thought about it is kind of less relevant now because we're 90 plus percent converted to fixed CAM. So the CAM charge is just another fixed charge that the retailer looks at in the calculation of the total occupancy cost that they're paying for the landlord. Our fixed cam all have individual annual escalators. And if you look at our operating costs, they've been pretty flat. And as long as that's the case, But I will tell you just in terms of our ability to drive
But I will tell you just in terms of our ability to drive rents, if you go back and we've given you some of the quarters in the K, but our occupancy cost is down over 100 basis points since Twelvethirty Oneten. So we're still providing very good profitability and value for our retailers.
Okay, great. Thank you guys.
Sure.
Your next question comes from the line of Ben Yang of Evercore Partners.
Yes. Hi. Thanks. David, you made some comments last quarter that demand is picking up in the BMO category that sales were actually okay. So 3, 4 months into the New Year, is that still the situation generally that the Bmall segment continues to perform okay?
Yes.
Yes. Okay.
Yes, it is.
Okay. And then also maybe for Steve, based on some of your recent conversations with lenders, are lenders taking a more conservative approach maybe to the BMO category given obviously what's happening at J. C. Penney?
Well, Ben, I would just say the lenders and I assume you're referring to the secured lenders, generally speaking have kept a more conservative posture. Loan to values are still relatively modest. Underwriting is still relatively conservative and that's true regardless of the quality of the asset.
Okay. So no significant change over the past few weeks given obviously the new management team at JCPenney's and a lot of uncertainty going on with that particular anchor. Is that fair?
That's fair.
Okay. And then maybe switching gears, you made some comments on China just now on the back burner tough to find opportunities tough to make money. Can you just elaborate a bit on some of the challenges that you see in China today that makes you a little more cautious? Because I do recall that you guys did go into China a few years ago doing some Walmart anchored centers and I'm curious what you see today that makes it still very challenging for you guys.
Well, that was a very good experience. And we brought 70 look, anytime you invest capital and you only bring 70% of it back home, you learn a lesson. And I would say Ben generally, generally the ability to underwrite the product there in terms of what the tenants are going to pay, what the costs are, what the approval process is, all of the elements of the P and L and the pro form a, including construction costs, land costs, permitting, It's all very not to say that people can't make money there, but it's all very difficult to really have a high degree of confidence. And when you think of the risk associated there, you would hope that the returns are better at least on the piece of paper that you're ready to make the investment are. And frankly, they're not.
And that's what that's where the big gap exists. And so a lot of it is build it and they will come. And that plays out pretty badly in real estate development. I mean, it's certainly build it and they will come in the U. S.
As Rick knows and I know Rick's older, so he knows a little bit more than I know. Build and they will come did not make every mall successful. There were a lot of malls that frankly shouldn't have been built. So it's just very tough to have the level of precision that we want. And if there were margin for ARI.
E. Returns on investment that were higher, you would take the risk. I just don't see it in everything that we look at on a piece of paper in China. Brazil is a little bit different. You can pencil better returns there.
But again, finding the right site and the right and the ability to build and so on is a little more difficult, but you do see a little bit of a you do see a much better returns at least on a piece of paper.
Okay. Very helpful. Maybe just one final one on China. I mean what type of returns would make it more attractive for you to go into China given all the risks that you kind of elaborated on?
You'll know it when we do it. And right now, I don't see anything on the drawing board that's going to and again, please, the fact of the matter, somebody will could be very successful and we could miss an opportunity. But for whatever reason, whatever we're looking at, it's just not making sense for us. That's not to say others might not be successful. Great.
Thank you. Sure.
Your next question comes from the line of Josh Hadinkin of BMO.
Hi, good morning.
Good morning.
A couple of questions on Toronto Premium Outlet and the broader opportunity set for the Outlet brand in Canada. Hudson Bay is opening their 1st outlet store there. Are you in a position to announce any other merchants?
Yes. We will. I don't know when we're going to do that, but we normally do that. We normally have done that throughout the process, but we will. I mean, we're this should be by all accounts a very successful outlet center.
We're already 85% leased and committed and we will be putting out a press release in the next month or so. It's opening in August. So it's happening and it's gotten very good response from both Canadian based retailers, but also the U. S. Retailers that are operating in Toronto already.
Yes.
Okay. So that was
my next question. The American brands, I'm trying to assess their level of interest in Canada. And are the Canadian brands that are going in there, are they developing a made for outlet merchandising strategy similar happened?
Yes, some are. Now we Hudson Bay is a perfect example. We have a wonderful relationship with the parent, which is as you know, Lord and Taylor. And we picked up the phone and said this you're doing Lord and Taylor outlets in the U. S.
A few here and there. You ought to do it with Hudson Bay. And really we generated that idea. They thought long and hard about it and they were very interested in doing that. So I do think it will start a trend there.
No question about it. And the U. S. Folks are very interested assuming they have a full price presence ahead of that. And Canada generally is very attractive to most U.
S. Retailers, but not all are there. And some of their outlet concepts will be delayed to the extent that until they have the full price there which is coming. And for us with Toronto Premium Outlets, the luxury brands are starting to hit Toronto. And what we think over time as they hit there, we have the natural place for them to do the outlet.
But again, that's going to take time. In the meantime, we're going to have a terrific center. And we have a Phase 2 there that will allow us to bring in the luxury guys as they hit kind of the Greater Toronto market. Okay. As you look at Canada, how many
build in Canada do you think?
Well, look we expect in our at least a one of the now this was a great secret. Now you've got 3 or 4 of the 8, but 1 in Mexico. Anyway, the one of the 8 at least 8 is in Montreal, which we expect again another meeting today on it, but we're going to start construction on that in July. And so that's we think that's a good market, a very good market. Now it poses a little trickier leasing because a number of the U.
S. Brands won't go up to Quebec, but we think that's offset by some of the international brands that really do like Montreal. In fact, Montreal is a great fashion city and they have great malls there and we think it's going to be a great long term project. So we've got Montreal. Obviously, Vancouver is a very interesting market as well.
We're focused on those kind of bigger gateway areas up in Canada.
Okay. Thank you.
Sure.
Your next question comes from the line of Nathan Isbee of Stifel Nicolaus.
Hi, good morning.
Good morning.
David, you've updated your FFO guidance after the Q1 for stronger operations. And just going back to the first quarter call you said on that call, it was going to be tough to match the 4.8% same store growth you did in 12%. Can you perhaps give us an update on those thoughts? Well,
we Look the Q1 was very good. We had a very what's really impressive to me is that it was off a really good Q1 in 12. So that's pretty significant cash flow growth when you add the 5.7 plus the 4.8 or on top of the 4.8. So I am conservative by nature. I think the organization generally is even though we probably don't complement them as much as we should, they're really doing a good job.
So it would be I would be very, very excited if we maintained it. We are not anticipating that. We also kind of trended down for the year. Q1 was better. So last year if you look, we kind of I don't remember where we were overall for 12, but 4.8.
4.8. So I think 13 we're heading in the right direction. I'm really not answering your question, but it's off to a good start is all I can tell you.
Okay. And then you talked about some of the fundamental strength in the B Mall market. There seems to be some new entrants into the B Mall category, people looking to buy some of those the Macy's outfit, etcetera. What are your thoughts in terms of perhaps accelerating your sales out of that group and taking advantage of the new entrants into that market?
Well, we're still going to prune the portfolio. So I mean, I'm pleased that there are new people coming into the market that are looking at deals. So I think that's good for us generally.
Okay. And then just finally on St. Louis, you have 97% spoken for at this point. Can you now that you're getting closer to the open, can you give us a little bit more perhaps the insight into the negotiations with the retailers on what why they chose your site over the competing? And what type of sales are expected to get out of the
Look, I can't I really am not going to get into that Nate other than to say we presented to them what we thought the center was going to be like Cincinnati Premium Outlets. This was kind of how we envisioned the productivity and the mix. And that's been very it's a quiet center, but it's been well received by the community and by the retailers. And that's how we sold it to the retailers. Now they have a lot of confidence that when we say we're going to build Cincinnati they did.
We did that. So that's how we kind of sold it and to them in terms of how they should think about their productivity. The pricing was similar to that. I mean the and we took it from there. I mean nothing beyond that really.
I mean it was competitive. But at the end of the day, I think retailers have a level of confidence with us that in terms of the outlet product. I will say this though. We got the because pricing in New Deal is not a the outlet retailer generally they know what they can afford to pay. So as much as we'd like to say there's great huge negotiation on rents, I mean they're used to saying here's what I pay on a new outlet center and that's what they pay.
So they're in a very good position to bargain what the rental rate is. I mean, the one thing they really wanted to do, they really don't like competing centers. They really like when there's one site and then they all go, because they don't they know what they can afford to pay and then that's what they pay. So in Charlotte, as much as the market might think, boy, Charlotte looks like we're going to build that one center. The retail community loved the fact that they didn't have to worry about a competing site.
They really, really liked it. Now in St. Louis, I'm sure a number of them felt that way as well.
Okay. And I guess your success there hasn't whetted your appetite for another
site? No. Look, we've lost plenty of those too.
So
but and I mean but it's like I said, it's not it's common to partner and just get a deal done for the community and for the retailers and be done with it. In this case, it didn't happen.
All right. Thanks so much.
Sure. Thank you.
This concludes today's question and answer session. I would like to hand the call back over to Mr. Simon for closing remarks.
Okay. Thank you for your time and your interest and we'll talk to you very, very soon.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.