Ladies and gentlemen, and welcome to the Third Quarter 2010 Simon Property Group Earnings Conference Call. My name is Michelle and I will 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. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the call over to your host, Ms. Shelly Duran, Vice President of Investor Relations. Please proceed. Welcome to Simon Property Group's Q3 2010 Earnings Conference Call. Please be aware that statements made during this call that are not historical may be deemed forward looking statements.
Actual results may differ materially from those indicated by forward looking statements due to a variety of risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission for a discussion of these risks and uncertainties. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that today's call includes time sensitive information that may be accurate only as of today's date, November 1, 2010. During today's call, we will discuss certain non GAAP financial measures as defined by the SEC's Regulation G. Reconciliations of these 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.
This package is also available on the Simon Web site in the Investors section under Financial Information Quarterly Supplemental Packages. Participating in today's call will be David Simon, Chairman and Chief Executive Officer Rick Sokolov, President and Chief Operating Officer and Steve Stearitt, Chief Financial Officer.
I
will now turn the call over to Mr.
Simon. All right. I'll go through some financial and operations. Good morning. I'll go over some financial and operational results.
First of all, we reported funds from operation of $0.90 per diluted share for the quarter, which was first call consensus 0 2010 to require the expensing rather than the capitalizing of transaction expenses. FFO as adjusted which excludes the impact of the debt extinguishment charge related to our August unsecured debt tender was $1.43 per diluted share, an increase very importantly an increase of $0.05 from $1.38 in Q3 of 2019 was another quarter of industry leading operational performance. We continue to see improvement in our business conditions. And let me talk the next few comments, we'll focus on our mall and outlet business, which contributes over 90% of our domestic NOI. Top sales on a rolling 12 month basis were $4.83 per foot per square foot, up 7 point 6% as compared to $4.49 per square foot as of ninethirtynine.
Tenant sales tenant reported sales were 10.6% higher during the Q3 of 2010 as 20 our own revenues and I'm pleased to report that our Q3 consolidated revenues grew $54,000,000 or 5.9 percent over the prior year period. Comparable property NOI growth was 3.6% for the quarter, 2.8% for the 9 months. Drivers of the increase in comparable NOI continue to be rent growth from higher occupancy, higher overage rent and lower bad debt expense. During the quarter, growth in base rents contributed 2 10 basis points to our comp NOI growth number. Overage was 80 basis points and lower bad debt expense was roughly 60 basis points.
As of ninethirty, occupancy was 93 point 6 percent sequentially 50 basis points higher than 6.30 points higher than 1 year ago. As of September 30, the releasing spread for the trailing 12 months was $1.13 per square foot. We're seeing gradual improvement in deal flow and the pricing of our space. Acquisitions, let me just give you an update on that and disposition activity on August 30, we completed the acquisition of Prime at a value of approximately $2,300,000,000 The transaction added 21 outlet centers, outlet properties comprising 8,000,000 square feet to our portfolio. As of September 30, the properties were 94.7% occupied with average base rents of $24.52 per square foot and they generated sales of 4 $6 per square foot.
This portfolio is an excellent fit for us. It presents a compelling opportunity. Benefit from shoppers demand for brand name merchandise at attractive pricing. We believe that our strong track record of operational excellence, financial resources, history of successful acquisition position us to meaningfully improve the performance of these assets for the the benefit of tenants, retailers and consumers. On the disposition front, on July 15th, we completed the sale of Simon Ivanhoe, our 50 joint venture Simon and Ivanhoe Cambridge, our JV partner, we received consideration of 7 €15,000,000 We recorded a gain of $281,300,000 on the transaction.
And as we've discussed, we retained a 25% interest in 4 development properties with Ivanhoe and Unibail. Capital Markets, again, we were very active in the Q3. In August, we purchased for cash outstanding notes maturing in 20 13 2014, dollars 1,300,000,000 of the bonds were tendered at a weighted average duration of 3.5 years, a weighted average coupon of 6.06%. We recorded $185,100,000 loss on the extinguishment of debt as was recorded in the quarter in connection with this purchase. And currently, we sold $900,000,000 of 4.3eight senior unsecured notes to 2021.
The notes were priced to yield 4.42 percent, the lowest the lowest coupon of a 10 year REIT bond in history. Net proceeds from the offering were used to partially fund the purchase the duration of our senior unsecured notes portfolio from 6.8 years to to 7.5 years and slightly decreased the weighted average interest rate on that portfolio. In the 3rd quarter, we also closed 5 new loans totaling $700,000,000 Our share of that was approximately $300,000,000 The weighted average interest rate on the loans was 5.3% with a weighted term of 9.8 years. Noteworthy, we recently locked rate at Fashion Valley Mall in San Diego on a 10 year basis at 4.3%. At the beginning hand.
And at twelvethirty onetenine we had $4,000,000,000 This gives you a sense of of how we deployed the cash in primarily three ways, a reduction of our unsecured debt including the net use of cash in connection with the tenders of $1,500,000,000 retirement of secured debt and the unencumbered of assets of $100,000,000,000 cash investment in prime and other acquisitions of roughly $550,000,000 At the end of the quarter, we had approximately $1,300,000,000 of cash on hand, which includes our share of joint venture cash and our availability on our corporate facility of over $3,000,000,000 for total liquidity position of $4,300,000,000 Capital expenditures, if I could turn to that, is a little bit higher than we originally planned, approximately 200,000,000 dollars which reflects an increase in redevelopment activity as a result of the improving economic conditions and demand. This capital spend in 2010 includes the completion of our expansion to South Shore Plaza in Boston, the Domain in Austin and the expansion of the Houston Premium Outlets, which will open this month, the expansion and renovation of Las Vegas outlet center, which is projected to open to open in March 2011 and more than 35 anchor and big box replacements in 20 10, you'll be happy to know I will not read them.
You can find them in our 8 ks. And during the Q3, we constructed we started construction on 2 premium outlet centers Meramec Premium Outlets and Meramec, New Hampshire, which is a 380,000 square foot center projected to open in June of 2012. There are 1.7 1,000,000 residents living within 30 miles of the site with an average household income of $87,000 as the center is located 1 North of Metropolitan Boston and sales tax free New Hampshire. Johor Premium Outlets in Johor, Malaysia, which is 175,000 Square Foot Center projected to open in November of 2011. It's located 1 hour north, 1 hour's drive from Singapore and Johor Premium Outlets is being developed in a joint venture with Genting Group and our interest in that is 50%.
By the end of 2011, we will have 11 Premium Outlet Centers open and operating in Asia, generating total NOI at the property level of well over $200,000,000 We continue to look at opportunities to upgrade existing department store representation or working to identify future department store availability based on existing performance. We have been very successful on our efforts to re tenant department store and other big box space and have another 20 5 deals approved with openings expected in 2011. And again, you'll be happy to know and I won't read those. As part of our renewed development, redevelopment push, we've identified 16 Regional Mall assets as potential transformational properties. The scope of these projects ranges from adding department stores, restaurants, specialty store tenants to the redevelopment of the entire asset and we expect work to commence on some of these in 2011.
Finally, let me conclude by saying that we are extremely pleased to announce an increase in our quarterly dividend from $0.60 to 0 point percent. This number will this getting to $2.60 for the year, which will approximate our taxable income and it also position us on a trajectory to pay at least 3 point $0.20 per share in 20 11. Based upon our results the balance of the year, we're also pleased to today increase our 20 10 FFO guidance as adjusted by $0.13 on the low end and $0.08 on the high end. And again, we are pleased to reaffirm to you that we expect to be sector
Your first Your first question comes from the line of Christy McElroy of UBS.
Hey guys, I've got Ross on the line with me as well. David, just following up on your comments on redevelopment, can you give us some of the economics behind expected redevelopment starts over the next couple of years relating to those 16 malls like total spend, timing of starts, that type of thing?
Well, redevelopment is an art, not a science. But I think our projected spend on these 16, depending on the scope, will be approximately $1,500,000,000 and we would certainly have the 16 hope to get a couple of them started in 2011. We're making some good progress on securing some commitments. And then with those commitments, I think we'll begin to actually start the project. So I would hope that we would have 2 to 4 next year and then at least get the 16% going by 2013.
And as you were looking at those opportunities, what kind of returns are you targeting?
I would say to you that they're consistent with what we've done historically. And in the redevelopment, we're still striving to get double digits around 10%, some will average a little bit lower than that, but some will be above that. So I would hope that we would be able to generate about 10% on the total investment over that 3 or 4 year period of time.
What's your occupancy today including temp tenants? Can you give us a sense for how temp leasing has trended so far in the second half relative to past years? And can you discuss some of the economics of the Toys R Us pop ups as compared to normal temp leasing?
Well, let me just say, as you know, we don't include seasonal or temporary tenants in our occupancies Unless a tenant unless a retailer is in there for over a year, it is not included in our occupancy. So the seasonal tenants are if you and as you know, you've walked plenty of our malls. Our malls look 100% occupied even though there may be some there may be some temporary tenants in the malls handful of temporary tenants in the malls. So it does not include that number. So with that said, I think the demand is reasonably better this year than last year.
And the rents, I can't I don't talk specifically about particular tenants, but I think Poiz, Rick are doing more deals this year than last year. Substantially more. Yes. So, but we don't talk specific rents with tenants, but they did have I assume they had a successful Christmas last year, otherwise they wouldn't commit to more this year.
And the only other thing I would add is that of the temporary tenants that Toys opened with us last year, we were able to convert a significant number of them into long term permanent deals. This gives them an opportunity to see how a given property is going to react to their offering. And if it is encouraging, they are prepared to commit long term, and we're anticipating to have a number of those convert this year as well.
And then Ross has a question or two as well.
Yes. Hi, guys. Rinaciente, are you looking to monetize that investment anytime soon?
Well, I don't comment on stuff like that. I try not to. I'm not perfect in that area. But the actually, it's not it's really gallery commercial GCI GCI as we call it. So I really have no comment on that.
I'm sorry to say.
Not a problem. The other outlets to get a sense of where those numbers consistent? Or was one number outlets to get a sense of where those numbers consistent or was one number driving it?
The answer is given the fact that they're both material contributors, they both contributed significantly to our growth. And I will just say this that based upon what I had seen, the mall comp NOI growth is still industry leading, if that helps you in any way, but we don't break those out as you know.
And I would assume fair to say that the outlets are perhaps leading the industry leading mall number?
That's correct.
Thank you. Your next question comes from
the line of Quentin Fazeli of Citi. Please go ahead.
Yes. Michael Bilerman here with Quintin. David, just on in terms of the dividend, I think you said that this would be at least to start off and it sounds like maybe some of the gain offset by some of the charges pushing the taxable for this year. How are you thinking about the dividend heading into 2011 as to where you'd want to set it? And is it going to be a few quarters for an increase?
Or you would think about it relative to when you provide $11,000,000 guidance in January to what level the Board is comfortable moving that $322,000,000
Well, let me just say this. You may not have caught this in my last remarks. We expect obviously, it's subject to the Board discussion, but I think it's safe for you to assume that we're going to be paying out $0.80 per quarter next year. And there is a possibility, obviously, we're going to have to pay out 100 or we want to pay out 100% of our taxable income. As we look at 11, even though we haven't finalized our budget process for 11 and there's a lot of things that go in and out in taxable income and obviously government has some involvement in that.
For instance, extending bonus depreciation. There are certain states that have an input on that. But I would say that we expect to pay out at least $3.20 To the extent that our taxable income is higher, then we would pay out more and that would be determined in the Q4 of next year.
That's helpful. And then in terms of the stats in your supplemental, you broke out prime, it's on page 24, in terms of the occupancy and the sales per foot, but you still kept in the premium outlets in with the malls. I'm just curious why you did that?
Just because it was we wanted to make scrub all the numbers, make sure it's all we wanted to give the market a sense of what the prime portfolio was by itself. And then next quarter, we intend to meld those into our numbers, but we felt since it was just a month old, we had there hasn't been a lot of data out there. We wanted to give the market a chance to see the portfolio, but it will be melded in next quarter.
Rather than melded out and spit all? Well,
we understand your opinion on that. And I have an opinion on certain things as well and we'll continue to have we continue to welcome those opinions. Thank you.
Your next question comes from the line of David Harris from Leuchten and Company. Please proceed.
Yes. Hi. I have a question on credit quality, tenant credit quality. Saw Gymboree taken out by private equity interests just recently and obviously we've seen the JCPenney move. Tell me, is there anything in your leases that sort of protects your position from a deterioration in credit?
I mean, many of these private equity deals seem to will seem to involve additional debt on the balance sheet. So you've got a less credit worthy tenant theoretically than you had before?
Hi, David, it's Rick. In certain of our leases, we do have those constraints and we have requirements for annual certifications and minimum net worth requirements. In the large public companies, typically, that would not be present. What we are focused on going forward and what they're going to focus on going forward is the ability to convince us that they're going to be able to pay their rent as it comes due. And I would tell you that we very give you an example, Golden Gate acquired Express, that was acquired all cash, now went public.
The fact that something goes private is not synonymous with a significant lease up adding of debt and decrease of the results in EBITDA. We of the results in EBITDA. We monitor that literally on a biweekly basis for all of our tenants. And if we see a tenant that is going the wrong way, we will reach out to them and tell them we're not going to be able to do more business with you until you get that more in line.
Yes. I'll just say this, David, that the I still call them LBOs, but the model changed somewhat with respect to leverage buyouts. And first of all, there has been enough historical bad deals done where leverage was pushed too high. And I assume that a number of the sponsors understand that. 2nd, and it gets back to Rick's point with Express and others, the model today frankly is to grow the business.
And what we're seeing is when the when there are companies taking private, the growth plans in a lot of cases actually accelerate as opposed to decelerate. So we don't expect much of a change from Gymboree. They were they had a pretty good growth trajectory. We expect that to continue if not increase. So the model is a little bit different and we can only hope that some of the past mistakes have been thoroughly reviewed about too much leverage.
But let's face it, it is a reasonable concern for us to be focused on.
I would just say generally the credit profile of our tenants has frankly never been better in terms of their free cash flow and their multiples of EBITDA to debt. So in that regard, as a macro consideration, things are more favorable today by significant margin than they've been in the past.
Okay. David, I've got a question for you on the global. I mean, obviously, this is an environment where there's a great of volatility in FX and particularly the expectation that the dollar may be a weak counter against a number of leading currencies. Has that influenced your thinking about where you want to take the company as a global entity over the next over recent times?
Well, I guess,
it's if you
had a in a sense, if you had a really negative view on the dollar and we felt like we could put our capital to work outside of the U. S. And add value to that real estate, then we would be somewhat motivated to do that. But it's very tough to have a kind of a permanent view on the dollar and where it's going. I mean, obviously, the last couple of months are wonderful indications of that where we thought we were going to have parity, not we, but the world thought we were going to have parity with the euro.
And now we're headed back in the other direction. So it's certainly factor in. Now the fact of the matter is we could still, aside from a number of emerging markets, you could still hedge a pretty good chunk of your investment if you wanted to. But if you did have the view that the dollar was going to be in a permanent decline, then there's a steward of capital would make potentially more sense to have assets outside of the U. S.
Than it does more assets outside of the U. S. Than we currently have. But at the end of the day, we've got to make real estate decisions. We're real estate people.
And we've got to believe that whatever we buy, we're buying at the right value where we could add value to it. Steve, I don't know if you want to add anything to it.
Well, I think David is right. And I would just say one thing, David, that one of the things that we do is because we finance our existing JVs in the local currencies, we do have a bit of a natural hedge anyway in that we're collecting rents as an example in Italy and euros, but our the entity is also financed primarily with euro denominated debt.
Yes. If we just set aside then the currency issue for the moment, David, as you look at the world as a sort of a range of opportunities, do you still see the U. S. Offering you predominantly the most attractive area to allocate your capital?
Well, David, I would say that the activity in the U. S. In our sector has considerably slowed. But that doesn't mean that there aren't going to be opportunities. I mean, sometimes they arise when you don't expect them and sometimes you have to be patient.
But and that's been our mantra for quite time. Look, if you look at the history of our company, we've been the consistent history of it is we've been criticized every step of the way. But the good news is I think we've made a lot of right decisions. So when we bought CPI, nobody was expecting malls to really trade and everybody thought we overpaid. But obviously, the history is that we did a hell of a deal.
When we got into the outlet sector after a few years of experience understanding the business, in 2000 we built a couple. We bought it in 4. We've grown that business. We brought it out of the kind of the dark ages into respectability, both in terms of necessarily know when it might happen. We don't do deals just to do deals.
Occasionally, our discipline has not been perfect. So, we every once in a while, we've done that, but we've done it on a basis that obviously financially we could handle that. And so I'm not, even though there's nothing eminent in the U. S, I'm certainly not thinking that that won't have opportunities for us, but I also think internationally and in Asia, I mean, as it kind of gets lost in the sauce here because of the size. But as I said in my opening remarks, I mean, we're going to have 11 centers in Asia.
This is a portfolio, so our share in Japan is 40%, in Korea it's 50% and so on. But that's going to generate over $220,000,000 of NOI next year with other prospects. In fact, in New York, I have dinner with our Japanese partner. There's other areas in Asia that we're going to examine. So we've got lots of ways to grow the company.
I'm not discouraged in the U. S. At this moment, but it is it's not like it was a year ago. Good news is we made a deal in 2009 when others didn't. And we've also made the right decisions like in 2,000 and 4, we didn't buy arouse where others did.
So I'm cool about everything.
Okay. Stay cool. Thank you.
Your
next question comes from the line of Paul Morgan of Morgan Stanley. Please go ahead.
Hi, good morning. Hey Paul.
Hey Paul.
So if I look at your lease metrics, you've done 9000000, 10000000 square feet of deals this year at $41 a foot and the lease expiration has been around $40 Could you help me kind of connect the dots between that and next year or the year after you've got 18,000,000 square feet expiring between $33 $34 I mean how much of that is just not really comparable or I mean would we expect to see I think in terms of lease spreads, lease opening rates to go down significantly based on what you've done so far or your spreads are
going to widen out significantly? Paul, it's Rick. First of
all, when you're dealing with our numbers, when you say $8,000,000 or $9,000,000 that's a whole lot of activity that is going to trans transcend any specific, for the most part, qualitative skewing in the mall business. What we are seeing is increasing activity from our tenants. As the sales have gone up, our occupancy costs have come in, and we're hopeful that we're going to be able to improve upon our spreads next year over this year. That's the anticipation. We've been able to hold our numbers.
And one of the things that has obviously helped, we're in a benign bankruptcy market. And so as we are getting more demand, we have less spaces that are going out where we have to replace it when we weren't anticipating it. So all those factors will hopefully give us a little better pricing power.
Paul, this is Steve. I'd just add 2 things. We talked about it a little bit on the last call. But in 2010, we did lose higher rent paying tenants like the jewelry stores. And so the dollar of the square footage that was the denominator in the equation is certainly higher than what you see in the lease expiration schedule going forward.
So absent that in 2010, we've had much fewer square footage loss certainly the last couple of quarters. I'd expect our closures to be closer to our lease expirations. I think that's one. And so that does suggest that you could see an our calculation is an apple
and an orange.
We add up all the Our calculation is an apple and an orange. We add up all the new leases that we do and we compare it to all the leases that closed, but they're not necessarily the same leases. But we do track internally a same space leasing spread. And that number on a $2.30 So it's a fair bit higher than what you see in the publicly reported spread. And I think that goes to Rick's point and just seeing an improved quality of the deal.
And I think again, as we go into 2011, knock on wood, I would think you'd start to see some acceleration in our spreads.
Is that $2.30 same space number,
does the pattern of it over
time look similar to the
ago? It was higher a couple of years ago for sure.
Yes. Yes. I would say it maps pretty much the openings and closings in total. Obviously, that number is depressed from where we were reported Steve's point in that what drove Steve's point in that what drove our closings was an unanticipated, the jewelry stores and whatnot. But if we get back to kind of the natural expirations, then our spreads audit migrate toward where they have been historically.
Okay. And then on the occupancy side, I mean, now that you include Chelsea in there, I have a
little bit harder time figuring out where you are
in terms of occupancy versus your I mean, how far in the malls do you think you are off your 2,007 or so peak? And do you think you can what's the timing for you
think you can get back to that type of
level? This is Rick. I think we're going to continue to make progress towards getting back towards that peak. Peak. We have our 80 bps spread that we had through ninethirty.
We should hopefully hold that through the remainder of the year and we're anticipating continued progress on top of that going into 'eleven. And so we should be creeping up on that 2,007 occupancy, assuming that we don't have unanticipated bankruptcies and other things going out that we don't see today.
Paul, just to fill in the dots or the blanks, if you will, we're between 100 basis points and 150 basis points below peak occupancy in the mall business. Okay.
Okay, thanks. And then just last question on the outlet side. Obviously, there have been people who've been talking about new projects as well. And I mean, have you done the analysis? I mean, how far how much opportunity do you think there is for new outlet centers in the U.
S?
Well, look, I don't have a number a specific number that I can tell you. Is a lot being talked about. And we know what we want to build, which is the premium outlets. So we think there specific number, Paul. Okay.
All right. Thanks. Thank you. Thank you. Thank you.
You a specific number Paul.
Okay.
All right. Thanks. Thanks.
Your next question comes from the line of Jay Haberman of Goldman Sachs. Please proceed.
Good morning, everyone. Hey. Rick, you mentioned occupancy cost has trended down a bit as the sales have come back and clearly bad debt is trending in a much better direction. I guess two questions. 1, how widespread is the sales increase?
I guess if you strip out Apple and other stores, how widespread is it? And even looking, I guess, Class A malls versus Class B? And number 2, as you think about leasing, just following on Paul's question, what is your target for occupancy cost, I guess, as you look out to 2011?
Well, let me do the first. In the mall business, it is pretty broad across project types and across the various categories. Obviously, in junior, some are going to be doing better than others because that's a highly quarter to quarter and fashion driven business. But we've seen very good stability across those. In terms of our occupancy costs, I think we've always said that we like to be in 13% to 14% range in the mall business and outlets have been operating less than that.
And so long as we can stay in that range, we've seen historically that our retailers can make very good profits and we can make an acceptable return on our assets and that's pretty much where we are trying to drive
the business.
Okay. And maybe for David, I guess even with the dividend increase, you guys are still going to have a fair amount of free cash flow per year and you've got 1,000,000,000 dollars of cash, the line is free and clear. Would you anticipate are you looking to build cash on the balance sheet or do you think you'd look to pay down debt because it looks like you're going to have $500,000,000 to $600,000,000 of free cash flow even after the dividend as well as the investments in redevelopment?
Yes. Look, we'll continue to delever. It's a nice spot to be in. And but absent specific investment opportunities, we'll continue to delever, which will obviously add to our growth rate and hopefully are multiple even though it's not clear that that's the case right this particular point. Let me go back to Rick's earlier point.
The thing that excites me is, yes, I love tenant sales growth, but I get more excited about our own revenue growth. And there's a lot to the mall and to the outlet center that now I understand the correlation between the tenant sales and potentially what because part of our job is to And because part of our job is to merchandise the center where if our retailers aren't producing the revenues that are commensurate with that center, we ought to replace it. And that doesn't get picked up in the comp which obviously given the high operating margins we have in our business that tends to drop disproportionately to the bottom line. That's our focus.
Great. And lastly, any quick comments on Florida, how trends are there?
Better.
Better than the average or?
Yes, better than the average.
In the tourist driven properties, there have been a substantial increase in tours coming in from South America and Europe for that matter, and that's a significant number of properties we have in the state and they are outperforming.
Great. Thank you.
Thanks.
Your next question comes from the line of Greg Smith of Bank of America Merrill Lynch. Please go ahead.
Thank you. The 21 prime properties that are currently doing, I guess, dollars 406 a foot and $24.52 in average rent, is there any reason why those metrics after they've been managed through the Chelsea team, they can't reach Chelsea's level? Or is there some geography or something constraint that they may not allow them to reach that total level?
Well, we expect to enhance the properties, Craig, like we would hope in anything that we've done. And Bryan has done a good job over the years, but we would hopefully build upon that and continue to increase the productivity and the cash flow from those centers.
Okay. And then in terms of Orlando, you already have about 550 square feet of outlet space and you're adding almost another 1,000,000. Is there anything you need to do to adapt that space or given Rick's comments about the strong tourist markets that may not be necessary?
Well, Orlando is an interesting market, because it's really so many different markets by themselves. And they operate kind of independently because the tourism is such that they're different markets. So the answer is not really. I mean they all serve their market, their target market well. And the good news is that Orlando market is unique in terms of driving visitor traffic.
There is nothing in the year. And we're the beneficiary as long as we continue to maintain high quality properties catering to those individual submarkets appealing to the tourists that go to each individual tourist destination.
And to David's point that there are separate markets, a substantial number of tenants are operating in both properties, because there are a lot of people that are going to Universal and staying on International Drive that are not going down to Disney and staying on the Disney compound. And that's so they are 2 distinct properties and 2 distinct markets.
I agree. And then finally, I noticed there has been a sales square foot improvement in the mills as well as an occupancy pickup. Are you introducing more outlet concepts than that? Or is that just a standard business as usual
and it's It's really we are introducing more outlets, tenants and additionally some that we're changing kind of what that center is going to be. For instance, in Gurnee, we are actually expecting to modify a big chunk of that center to be full price. And but the rest is a lot of just bringing in the better merchants, a number of which are brand name outlet operators, plus Rick and I don't want them to you with the details. He's got his list. He's dying to read it.
But we won't let him, okay? Is that we're adding we're doing a good job of re tenanting the boxes that we lost with the Stephen Barry's, Linens and Things, Circuit Cities, etcetera. We've got a couple of Bloomingdale outlets that we brought in to the center. So just better leasing management and taking advantage of a better economic scenario. And Rick is available later to read you all of what he's done recently.
I'll call Rick later. Thanks.
Bye. Thanks.
Your next question comes from the line of Alex Goldfarb of Sandler O'Neill. Please proceed.
Thank you. Good morning.
Hey, Alex.
Just quickly on the capital side and this is probably more for your JV properties. Just given
where the portfolio lenders are and
it seems like they're a little behind, maybe they've caught the portfolio lenders are and it seems like they're a little behind, maybe they've caught up, but it seems like they're behind in allocating for the year. Has any of that caused you guys or your JV partners to reconsider refinancing plans or is it more that the reconsider refinancing plans or is it more that the thought of refinancing a property is a much bigger decision than just simply where you can get a rate and a size of a loan on a project?
Alex, it's Steve. I mean, I think it's the latter. A refinancing decision is above and beyond just what your capital spend is. But I mean, having said that, it's a high class problem to have because we do have many properties, JV properties where we've got substantial capital to spend. Rick whispered to me that we're in the midst of doing a renovation of Fashion Valley, where we just refinanced.
We have some other properties that are in that list of 16 assets that David mentioned that could potentially be transformational. And a couple of them that I can think of right off hand are very low leverage. So the opportunity to roll the source of capital for that transformation
is not subject is not subject to a prepayment penalty or yield maintenance penalty, we're actively talking to our partner about refinancing it. So traditional secured debt usually has something along those lines. So, but we don't have a lot of floating rate debt on JV at all period. But to the extent it's not locked out or the yield maintenance is de minimis or there is none, then we're talking to the partner about refinancing, which is exactly what happened in Fashion Valley. Fashion Valley is a great scenario historically about kind of what happened.
I think we had can't remember all the details other than it came due in 'eight. We had both of us had to put capital in to pay off the mortgage, which I believe was a couple of $100,000,000 Then we got a $50,000,000 loan. Then we got that $50,000,000 went to 100, then that $100,000,000 went to $200,000,000 and now the $200,000,000 went to $475,000,000 all in the span of 18 months. So maybe that's pretty good recollection actually. So I mean that's kind of what happened.
We when at at the end of 'eight.
Okay. And then moving to the prime, now that the books have been closed, can you give us a split of originally I think on the cash yields you were talking about an 8%, but what you think the GAAP yield will be?
Well, no, but we'll do better.
Okay. And then just finally, wrapping up document processing thing or is this anything that could linger for a while?
We don't believe so. In other words, we do it's ordinary course.
Okay, great. Thank you.
Thank you.
Your next question comes from the line of Michael Mueller of JPMorgan. Please go ahead.
Yes. Hi. Most questions have been answered. But going back to the debt pay downs, not a lot coming due in terms of secured and unsecured notes next year. Should we expect anything in terms of maybe a pool of assets like we saw in 2010 get unencumbered?
Well, Michael, we actually don't have a lot of opportunity to unencumber assets at the balance sheet every day. We're certainly working at absent of transaction opportunities, we will delever. It was interesting, you said not a lot to do, but we still got $1,000,000,000 plus of mortgages to redo in 2011. There's sliver interest of bonds. I think there is about $400,000,000 left in 2011 that wasn't tendered.
You could certainly see us pay that down. But we'll just pay attention to where the market is.
Okay, great. Thanks.
Thanks.
Your next question comes from the line of Steve Sakwa the ISI Group.
Hi. Two questions. First, Rick, can you just talk about what percentage of leasing you might have already for 2011 at this point in the year and compare it to say a year ago and how much leasing you had done in 2010?
Yes. We're through probably about 39%, 38%, 39% of our 11% s and that's pretty much where we were this time last year.
Okay. So even though you're feeling better about the world, I guess, I'm trying to figure out if maybe that 39% got committed to at lower rates, now the world's
better? Well, one of the things that we're doing is and we said this last year, we're not in as much of a hurry because the world is getting better and renewals in 2011, some renewals are literally still 13 months out. So there is certainly no hurry to have to address those renewals that are in the Q4 where we think we're going to be in a much better shape. We could look. We can control that by deciding how we price our space.
And so we're going to be very deliberate in how we price our space, and that's going to impact the pace of our renewals.
Okay. And then I was wondering if you could maybe just spend a little bit of time talking about Prime. And as you kind of look at that portfolio today and maybe hearken back to when you bought Chelsea, I didn't see an occupancy cost David disclosed for that portfolio. But just what sort of upsides do you see? I mean, obviously, that portfolio is not as productive as the Chelsea assets.
But as you kind of look here today, you've owned it for a month. What kind of opportunities do you see embedded in that portfolio?
Well, let's just say there's no way to replicate what we got out of the Chelsea portfolio. So other than a few individual centers here or there, as you know that's the highest portfolio out there. So look, I think Steve, it's relatively straightforward stuff. It's better marketing and it is better leasing through better merchandise management. And when you do the 2 together, they kind of fuel off each other and you get the desired impact that you're looking to.
And there's also going to be the ability to reclaim, redemolish certain space that we think we can make more productive. Little developments, corner of the corner of the center, center is good center, good leasing, but there's a corner that's effectively not part of the nice atmosphere that was created there. So trying to figure out how to anchor that and re tenant it and make it part of the center is going to be the of things that we do. And we've already identified a number of the better merchants that we think will be able to add to the portfolio. There's less and less of opportunities to better merchandise the centers.
Well, David, if you don't want to disclose the occupancy cost, can you just tell us if it's above or below where the I guess the Chelsea portfolio or the premium outlet portfolio is?
It's below.
Below.
Okay. And then Steve, I know it's sort of a technical question, but the $47,000,000 in charges this quarter, any way to sort of just break out some of that amongst the different buckets of things you pursued?
No, Steve. It's just a composition and a compilation of related everything.
The important point is that we're not going to you don't expect to see that going forward.
Are there any lingering charges that might occur in Q4 as a result of any of the activities you pursued this year?
De minimis. Yes, I wouldn't expect
Okay. Thanks.
Thank you, Matt.
Your next question comes from the line of Nathan Bisbee of Stifel Nicolaus. Please proceed.
Hi, good morning. How are you?
Good. Just returning to the rent spread issue, can you just please provide some detail on the rent spreads just breaking out malls versus outlets?
We put those together, Nate, if you hadn't noticed.
No, I know, but you gave a
little bit of detail on the on the stamps around why before in terms of saying that it was above the it was still industry leading. Would you say that malls were positive this quarter or trailing 12?
I'd say malls are relatively flat.
Okay. Thanks.
Sure.
Your next question comes from the line of Andrew Stanton of Credit Suisse. Please go ahead.
Hi, good morning. How are you?
Doing well. If you removed Apple from your sales number, do you know how much of the percent growth that percent growth that attributes?
Very, very, very little. Remember, we have 65 1,000,000 square feet, then we add the outlets to it. So it's $80,000,000 There, we had like 40 Apple stores. So I don't have it off the top of my head, but it would be de minimis in terms of the growth. I Obviously, we think they're a great retailer and a great company and we want to do more and more stores with them.
But in terms of having a major impact, it's just not there for us.
Okay, great. Nice quarter.
Thank you.
Your next question comes from the line of Cedric Lachance of Glen Street Advisors. Please proceed.
Thank you. You have a small stake in value retail in Europe. What's your appetite for doing more on the outlet side on the European continent? Well, look, I would say that put value retail aside, I would say that we have a obviously a nice U. S.
Outlet business. We have a nice Asian outlet business. And strategically given there is a commonality of the product and retailers, it would be nice to have a European presence in that business. But I won't talk specifically about value retail or anybody else. But it would make strategic sense for us to be represented in Europe with good quality outlet centers.
And what's the best way to approach that? Is it via development primarily? Or do you think that there are interesting acquisition targets over time? Well, I'd say both are tough, frankly, Cedric. Development is clearly the hardest to do, but we have looked at certain things in the past.
And I would say on the acquisition side, there could be opportunities for us down the road. So I would lean more toward develop there and all of the uncertainties and to develop there and all of the uncertainties and all the stops and starts. But we look at both. We look at both.
Okay. Thank you. Thanks.
Your next question is from the line of Tayo Okusanya of Jefferies and Company. Please go ahead.
Yes. Good afternoon. Most of my questions have been answered, but just a few quick follow-up points. Could you tell us what occupancy costs actually were at the end of Q3?
Yes. For the end of Q3 for combining malls on outlets, it was 12.1%.
12.1%. That's helpful. And then the reversal of the provisioning during the quarter, could you talk a little bit about the reasoning behind that and what we can kind of expect in regards to credit provisioning on a going forward basis?
Yes. I mean, what happened in the Q3, quite frankly, is we just collected some receivables that we had fully reserved for. And when you collect something in cash and there's no longer to offset it with on the balance sheet, it has to flow through income. I mean historically Tayo, our bad debt expense runs about 50 basis points, so 0.5 percent of revenue. I would tell you, it looks like 2010 is a year where we're going to end up with literally close to 0 bad debt expense.
But if you're looking on a go forward basis, I think it'd be difficult to replicate that experience in 2011. So I expect to see some return to a more normal level of bad debt.
Great. That's helpful. Then last question. As we start to head into the holiday season, just give us a general sense of what you're hearing from your tenants about what sales look like or what their expectations are going to be?
Look, I will tell you that the good news is Christmas holiday season is no longer make or break for retailers the way it's been 20 years ago. That's all you heard about was they had to have a good Christmas season to survive. Our retailers are much better operators. So it's not make or break the holiday season any longer. I can tell you that generally the holiday season never meets expectations too.
I think one out of the last 10 years it's met expectations. So much has to do with the mood and psyche of the consumer and there's obviously a lot out there to sway it one way or another. I'll leave my political views to the side for the time being. So the long winded answer is my own personal view is it won't meet expectations, but it's just because I'm betting on history that it never seems to. And when I say expectations, and when I say expectations, probably more of what the media or NRF or some of these other people put out.
But I don't get overly excited one way or another whether it meets or beats or doesn't just because I think from a retailer's point of view, they've learned how to manage it appropriately. They do seem poised to have a better season because inventories have been built up. That's good and bad, right? That's good in the sense that if there is demand, they could drive sales. On the other hand, it is looking like the season could be a touch more promotional than it has been in the past.
But again, I don't get caught up in the it's almost like the politics who's going to win and who's not going to win. Lots of pundits out there. The good news is from our retailers, they seem to be able to manage it either way.
Very helpful. Thank you.
Thank you.
Your next question comes from the line of Ben Young of Keefe Bruyette and
Woods. David, you mentioned the occupancy cost is currently lower for prime versus your other outlets. I'm curious if you have the same occupancy cost target for both outlet portfolios when you sign new leases. And if you don't, I'm wondering if there's any reason why you can't get to that same level for prime?
Well, look, I think we have enough experience that we know what market rents ought to be. And given that, we feel good that there is growth in the prime portfolio. And not only because of where rents are versus where market rents are, but also because we're going to make the centers better. And by making them better, retailers are going to want to be there. And that's essentially I wish it were more complicated than that.
That's basically what our guys are charged to do.
I mean, but will there come a day when you can maybe narrow that occupancy cost gap or do maybe less productive outlet centers just naturally get a lower occupancy cost?
Well, there's certainly part of that. There's no question there's part of that. I mean, and typically what we've had in the outlet business is even though rents have increased, sales have increased even at a higher rate. So the occupancy costs still can't catch up to the number that makes sense. But clearly, there are going to be centers that have lower productivity.
You're not going to be able to charge the kind of rent that you could at higher productivity. So there's certainly part of that element with prime and even existing outlets that we have today. And that's the same thing for malls as well.
Okay. That's helpful. And just final question.
Did you guys revise your same store NOI guidance for the year? Because I think it currently stands at about 1% to 1.5% seems a little
bit I think I'm looking at 11%, so the answer is no, but I think we'll do better. Okay? Okay.
Great. Thanks guys.
Thank you.
Your next question comes from the line of Rich Moore of RBC Capital Markets. Please go ahead.
Hello, guys. Good afternoon.
How are you, Rich?
Good. Thank you. On percentage rents, we're looking at percentage rents as a percentage of sales and those seem to go higher. Is that the inclusion of Prime do you think or is there something else going on there?
It has nothing to do with Prime at all really. We only had prime in for a month. It's really just better sales across the portfolio and obviously both in mall and in the outlet side.
Okay. So you think that could continue, you think that's sort of trending higher, is that what it sounds like?
Well, clearly, I mean, clearly trending higher as you can see by our sales growth for our retailers, that's for sure. But it is a variable number and it's once the retailer is in there, it's out of our control. It's really how they produce. But it ought to assuming it continues on that path that ought to be certainly higher than last year.
Okay, good. Thank you, David. And then in the other income line, Steve, in the joint venture portfolio that seemed to jump unusually. What was in there again? It's 2 things that are primarily driving it, Rich.
Number 1 is the property that
we are a 25% owner of had a large outlot peripheral transaction that was about a $20,000,000 gain. Our share of that was about $6,000,000 So even though you're seeing a large impact in the JV footnote, actually our share of it isn't that significant. The other one is just and you see this in the consolidated financials as well. We had a higher level of lease termination activity. I think it was up about $10,000,000 in the JVs and I think our share of that was about $1,000,000 So that's the majority of the increase.
The rest of it's just normal growth in business that we're seeing across some of the line items that flow through there.
Okay. Very good. Thank you, guys.
Sure.
You have a follow-up from the line of Quentin Ganelli of Citi. Please proceed.
Good afternoon. Just in terms of the 16 transformational redevelopment projects you were speaking about earlier on, I think you sort of mentioned that a few of those projects would be complete redevelopments of the assets.
So I'm just curious which
assets they were and whether or not we should be thinking about that as sort of
expansion CapEx?
Well, we have 2 malls that are basically have been demalled and produce no income today and in fact they have a slight negative. So those certainly would be in that category. And but I don't think given the opportunity ahead of us and given the lack of new space out there, I would say to you that not any of this is really defensive. It's really because there's an opportunity in there and demand is somewhat increased. When I think of defensive, it's in the way you describe it is maybe in connection with something else happening in the marketplace.
These are just there to be done to improve upon.
Okay. And so of the $1,500,000,000 it's a very small proportion?
Clearly. Okay. Clearly.
Thank you.
Thank you.
We have a follow-up from Dan Harris of Leach and Company. Please go ahead.
Well, thanks for taking the cherry, even if they changed my first name. I don't know if I dare ask this question, but general growth comes out of bankruptcy
I let our performance speak for itself. So fact of the matter is, David, we have prospered whether general growth was growing in bankruptcy or emerging from bankruptcy. The bottom line is we've been able to grow our business and do well regardless of what they or anyone else has done. And I look back and say, it's very interesting to me and I know a lot of people aren't earnings focused, but we're going to be one of the few, let's just take First Call as a barometer. Based on 11, we actually have the potential if you use first call as a barometer to actually have the best earnings per share that we've had.
So yes, we did some dilutive deals. We sold common stock. I'm not thrilled about the price that we did, but we felt like in the scheme of things we had to do it. We're actually our growth is such that we're going to, if you believe first call and obviously we're going to come out with our guidance, but I wouldn't be talking like this if I didn't think that that was a possibility. We're going to actually outgrow our dilution and hopefully next year do better than what we've ever done, which was in 2008, correct?
Our FFO record FFO per share. So, which our record FFO per share, I think, was $6.42 You can see that where our dividend trajectory is back to where it was. You compare all of the other REITs out there and in particular all the other retail REITs, they're 30%, 40% of their FFO per share and 30% 40% of their dividend per share. And in some cases, even a lot worse than that. So as an example, I won't say it because I mean it's really but so the fact of the matter is our troops know what we want them to do regardless of whether what happens with general growth or not.
So I think I answered it your question.
Yes. Let's tackle it slightly different way. I mean, the last couple aside the public companies and obviously we've got we've had a fairly good handle on that. Do you have a sense, David, that you've
picked up? We have an interesting chart we'd be happy to share with you.
Okay. Well, look, NAREIT maybe. Now let me ask my question then it's probably maybe you can show me the visuals in a couple of weeks. Do you have a sense over the last couple of years, the stronger companies and would obviously include most of the public companies within that group have picked up substantial market share from some of the other players in your marketplace?
Well, certainly. And certainly at a property level, there is some of that. But more importantly, it's really as at a company level that you can see that differentiation, easiest.
So Does your chart show that? It must be bottom left to top right. All charts that I ever look at
go that way, don't they? Of course. Certainly, when we do the charts.
Is that what you're going to show me in a couple of weeks, David?
Will now.
Good. Good. I look forward to it.
All right.
Thank you.
Thank you. Thank you, David.
And you have a And
you have a follow-up from Steve Sakwa of ISI Group. Hi. Yes. I just wanted to make
sure, Steve, when you're providing that same store NOI increase in the 8 ks, that does include the benefit of lease termination income?
It does not include the benefit of lease termination income. We separate lease termination income out.
Okay. So I guess really then the figure for the basically the reversal of the bad debt this year, but not the increase in lease termination income?
That's correct. Bad debt is a component of same store.
Now, we in our earlier comments, we mentioned how much that was, the 3.6%.
Right. For the quarter, bad debt added about 60 basis points. That would have been 3% if bad debt would have been the same as last year.
And Steve, do you know what it was for the year, the 9 months number?
The bad debt is 80 basis points, I believe.
Okay. Thanks a lot. Sure.
If there are no further questions, I would now like to turn the call back over to Mr. Simon.
Okay. Thanks. Sorry, operator, I jumped on you there. Thanks to everybody. We'll talk to you soon.
Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.