Good day, ladies and gentlemen, and welcome to the Simon Property Group Incorporated Conference Call to discuss plan to spin off its Strip Center Business and Smaller Enclosed Mall's Conference Call. My name is Glenn and I will be your operator for today. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session. I would now like to turn the conference over to your host for today, Ms.
Liz Zale, Senior Vice President of Corporate Affairs. Please proceed.
Thank you, Glenn. Good morning, everyone, and welcome to Simon Property Group's conference call to discuss our planned spin off transactions. Presenting on today's call is David Simon, Chairman and Chief Officer Rick Sokolov, President and Chief Operating Officer and Steve Sterett, Chief Financial Officer. Before we begin, a quick reminder that statements made during this call may be deemed forward looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of forward looking statements.
Statements. Please note that this call includes information that may be accurate only as of today's date. During this call, our remarks will highlight key elements of the investor presentation that has been posted to our website, investors. Simon.com, and you may follow along. I will now turn the call over to David Simon.
Okay. Good morning. Thank you. Earlier today, which happens to be the 20th anniversary of the Simon Property Group IPO, we announced our plans to spin off all of our strip center business as smaller enclosed malls, which we identified as those malls with less than $10,000,000 of net operating income into an independent publicly traded REIT, which for the moment we're referring to as SpinCo. We're excited about this transaction, which we believe is a positive for our shareholders.
Over the years, we have seen a number of very attractive investment opportunities in these asset classes that we have not pursued given our primary focus on our global portfolio of larger retail assets. We've been thinking about an appropriate strategy given our evolution as a public company. And having considered the full range of strategic alternatives for quite some time, we have concluded that a spin off is in the best interest of our shareholders. Putting these assets in the hands of a dedicated management team with a strong balance sheet creates a company that will be able to execute on a growth oriented strategy. And by spinning the business off rather than say selling it, we're ensuring that Simon shareholders will be the ones to benefit in a tax efficient way SpinCo's profit potential and the value inherent in its platform of quality, stable retail retail assets.
Now Rick and I are going to go through the presentation. So you may want to follow along. We'll get some highlights. On Page 4, we believe SpinCo will be a retail real estate company poised for growth. SpinCo will have an independent management team and Board, but will benefit from continued relationships with Simon both at the board and property levels.
Simon will be able to focus on its global portfolio of larger malls, mills and premium outlets. $4.80 per share, which we continue to expect to grow given our growing FFO and taxable income. And SpinCo is expected to be at least 0.50 dollars per share going forward after the spin. And each SPG shareholder and unitholder will receive a pro rata distribution resulting in identical ownership of SpinCo. As shown on page 5 and alluded to already, we're establishing SpinCo as a separate company with the ability to focus and grow its business, while allowing SPG to continue to do what it does best.
SpinCo will have a strong balance sheet, equity currency and access to capital. And SpinCo will have the ability to pursue development, redevelopment and acquisitions of strips and malls. Finally, we're enhancing transparency for investors. The 2 companies post spin will produce a greater level of disclosure on combined basis. And through this disclosure, we'll be able to better highlight the key attributes of each company.
The transaction just doesn't create a new real estate company. It creates an even stronger assignment. On Page 6, following the spin, our operating metrics will increase. Sales per square foot increases from $5.79 to $6.16 when comparing Simon today versus Simon post spin. Sales in the mall portfolio go from $5.60 to $6.25 per square foot, while outlet sales remain at $606 Occupancy increases over 100 basis points.
And at the same time, we expect no change to Simon's credit rating or related outlook. I'll now turn the call over to Rick to give you more details on SpinCo.
Thanks, David. I'd like to introduce you to SpinCo. The portfolio consists of 44 malls and 54 strip centers totaling 53,000,000 square feet. SpinCo will have one of the largest most diversified polios of smaller enclosed malls and strip centers in the United States. As shown on page 8, the portfolio spans 23 states.
Page 9 highlights SpinCo's strong financial metrics. SpinCo's initial year net operating income is estimated to be in excess of $400,000,000 at share and comparable NOI growth for the portfolio is 2.2% year to date. SpinCo's initial annual FFO is expected to be $300,000,000 or $0.80 a share. SpinCo will have a flexible, conservatively managed balance sheet and as previously mentioned is expected to pursue an investment grade credit rating. At the time of the spin, we expect SpinCo to have about $2,000,000,000 of debt, including at least $1,000,000,000 in new debt to be added to SpinCo between now and closing.
The cash proceeds of this new debt will remain in Simon. SpinCo will pay out an estimated annual dividend of at least $0.50 per share, which will result in an increased total dividend for Simon's shareholders. We believe SpinCo represents an attractive investment for shareholders. Its strengths are highlighted on Page 10. It is starting with an asset base of considerable scale as a demonstrated track record of stable operating performance and we expect cash flow to grow.
Its dual asset class strategy, malls and strip centers enables efficient allocation of capital between 2 complementary retail real estate categories and a number of common retailers. Its strong balance sheet positions the company for growth combined with its significant scale will enable SpinCo to be a leading acquirer in both asset classes. Finally SpinCo will be an independent company and a majority of its Board will be independent directors and it will continue to have ongoing relationships with Simon. David will be a Director and I will be Chairman of SpinCo's Board and we will both be significant shareholders, David a little more than me. Simon will provide property management and support services to SpinCo.
SpinCo's primary objective is to deliver attractive total returns to shareholders by executing on a growth oriented business strategy. This strategy is outlined on Page 11 and includes driving internal growth through rigorous asset management and capital allocation, executing on targeted value added redevelopment projects to enhance portfolio performance, we have identified pipeline of approximately $300,000,000 of potential projects. Pursuing acquisition opportunities in both asset classes, selectively developing new high quality strip centers and several opportunities are already embedded in SpinCo, taking advantage of the value inherent in SpinCo's platform and of course maintaining a strong balance sheet. Some components of SpinCo's strategy are already being executed. If you look on Page 12, you can see the substantial investment that has already been made in SpinCo's assets to attract and retain key anchor tenants.
This year alone SpinCo's redevelopment activity will be approximately $80,000,000 and recent activity has resulted in the addition or expansion of tenants such as Walmart, Bed Bath and Beyond and Dick's Sporting Goods. As discussed on Page 13, SpinCo will have a dedicated executive management team in place to execute on its growth strategy. Key executive positions are currently being sourced from both internal and external candidates. The entire Simon strip center team will move over to SpinCo and SpinCo's malls will continue to receive management services from Simon, so there will be significant continuity. A few words on process, which is summarized on Page 15.
We're aiming to complete the transaction in the Q2 of 2014. The immediate next step is the following the initial Form 10 with the SEC, which we expect to do before year end. We have also listed for you all of the SpinCo assets and the related property information on pages 17 to 23 of the presentation. Let me now give it back to David for some closing
Okay. Thanks, Rick. In conclusion, let me say again that we're pleased to announce this transaction on Simon's 20th anniversary as a public company. The spin will unlock the potential of our strip centers and these malls and will allow Simon to Simon to focus on our larger assets. We believe we are creating a new company that has both a strong Simon heritage and all the requisite tools to grow its business to succeed.
And from a shareholders' point of view, we're increasing our overall dividend from these 2 on a combined basis to $5.30 with gross prospects in the future. From a shareholder valuation perspective, taking into account the trading valuation of comparable peers for SpinCo and the anticipated cap rate compression for SPG, we expect a higher overall valuation. And we're now ready for your questions. Thank you.
And your first question comes from the line of Michael Bilerman with Citi. Please proceed.
Yes. Good morning. Christine McElroy is on the phone with me as well. David, you talked about the $10,000,000 of NOI being the threshold to decide which assets went into each bucket spend versus same assignment. Was there anything else as you sort of went through looking at the 100 60 assets or so that only 44 went over?
I guess at what point did you say you had to draw on the line? And what other factors drove that?
Well, we're focused more on the smaller malls. And as we did a thorough analysis of the portfolio, the $10,000,000 of NOI kind of led us to that conclusion. We certainly have some that are still in SPG that are smaller in nature because of joint venture relationships. But the focus has been on the Strip business and the smaller malls because of the continuity in the retail relationships and the commonality of how you run both of those. And it was a natural kind of a demarcation that $10,000,000 NOI level.
And then just from a financial standpoint, by increasing the dividend effectively $0.50 you are reducing the company's free cash flow by about 200,000,000 dollars You're getting $1,000,000,000 obviously out of the entity once you spin it off. But I'm just how do you sort of think about that perspective and being able to fund growth going forward?
Well, Michael, there's nobody in the industry that has our balance sheet pre and or post spin. And if you look at our credit statistics, you will notice that for post spin SPG, there's really no change in any of the credit metrics. So we certainly have all the firepower available to continue to fund our development. Obviously, some of the development pipeline that we have goes to SpinCo. So that amount of capital will be reduced that we want to put back into these assets.
But there's no question in my mind that we'll be able to continue to do what we've been doing, which is significantly invest in the portfolio for the benefit of our retailers and consumers. And there will be absolutely no change to plan. And as I said, some of the capital that is earmarked will go to spend.
And Christy had a question.
Hi, good morning. What will be the nature of the new $1,000,000,000 of debt? And in terms of your plan to pursue an investment grade rating for SpinCo, have you already engaged the rating agencies in discussion?
Yes. Steve's here. So Steve, why don't you answer that?
Yes. Christy, we have had conversations with the rating agencies about the transaction both from the perspective of the minimal impact on Simon's credit metrics as David mentioned, but also about laying out what SpinCo looks like post spin and setting the desire and the expectation that we want to get SpinCo investment grade rated at the time of spin.
So I think part of the new debt that SpinCo will assume will be a combination of secured and unsecured debt.
Thank you.
And your next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Please proceed.
Good morning. Certainly makes for an exciting Friday 13.
Yes. We never let dates worry us.
Well, Saturday 14th was a good sort of spoof movie. Just a few questions here. First of all, David, regarding the family's ownership stake, presumably a lot of that OP unit, Is there any commitment on part of the family to retain an ownership stake in SpinCo?
Well, we're going to own the same amount of units in SpinCo that we are in SPG. And absolutely, we're going to continue to be unitholders on the same percentage. So this is an absolute spin. There's no every shareholder will get a unit in if they're a unitholder, they'll get the same units that they own in spin and every common shareholder will get the same amount of common. Let me just broaden your question and say to you that both Rick and myself are absolutely unequivocally focused on making Spinco an extremely successful company.
Otherwise, we would not be on the board and we would not put our personal reputations at risk. Our family will continue to own what it owns and we feel very good that SpinCo as we look at the landscape a similar situated retail real estates, the experience that I've had and that Rick's had over 20 years in building SPG. We expect to be able to do some nice and interesting things at SpinCo, obviously, without taking our eye off on SPG. But we have a real commitment to make SpinCo a successful company.
Okay. And then as far as so the legacy Strip management team goes over to the new entity, but you had mentioned that Simon will sort of be the 3rd party manager of the malls. Is that a permanent endeavor? Or will you ultimately seek to either move Simon people over or hire other mall people to run the malls?
Well, I think there will be a term of agreement. This will be outlined in the Form 10. But we're going to give flexibility to SpinCo. Ultimately, they're to provide the asset management role for the malls. But in terms of the property management, it will be done by SPG.
And then ultimately, we're going to give SpinCo the flexibility to decide in about a 2 year period of time or thereabouts what it wants to do going forward. So I think that's a little bit flexible other than for the 1st 2 years, FPG will provide be flexibility at SpinCo's level to decide as well as SPG's side to decide what it wants to do after about a
2 year period. Okay. And I would say that what that provides is continuity. We have a lot of activity going on in this portfolio in terms of leasing and redevelopment. And we don't want to take our eyes off that ball.
So we can continue to deliver those results and that growth that we've delivered historically. And that's the best way to do it in the intermediate term.
Okay. And just finally, with the focus of Simon now being more global and on the larger malls, previously with regards to the balance of Clay Pier, you guys had indicated that you're fine with your ownership stake. Does this transaction mean that now mentally you've changed and now you would consider 100% of Klapiyar if that became an option, an opportunity or is the thinking that still we're fine with the ownership stake as it is, if something happens, we'll let someone else take a look at buying the balance of the BMP.
Bob, I'm glad you brought this question up. I mean, this really has no change whatsoever in how we think about our international business. And we've made it clear, we're very pleased with our ownership interest at Klepierre. We don't foresee that changing. This change for SPG will not change our attitude on the international business.
We've been very cautious, very successful. We are not going to change that model. And we and Steve and I know Rick have made that clear to our shareholders. Our shareholders need to begin to believe us in how we're approaching that. And it's not going to change our attitude toward international.
We think there's opportunity, but you've got to be very cautious, very deliberate. And our number one goal in anything we do is to make money. And thus far, we've been successful. So no change in summary on that. And I appreciate you asking that because I think that would be a natural conclusion to this.
But in fact, it really has had nothing to do with how we're thinking about the spinco.
Okay. Appreciate it, David. Thanks.
Sure.
And your next question comes from the line of Steve Sakwa with IFI Group. Please proceed.
Thanks. David, I guess I want to focus a little bit on kind of the spinto, the kind of the redevelopment and the money that you're talking about putting into the assets and trying to hire kind of a new management team. I guess I'm just really trying to figure out in effect how much neglect or just lack of focus have the assets had relative to your larger assets in the portfolio? And just trying to really understand how that $80,000,000 investment which looks like it's been ramping. How much of that in the $300,000,000 was really kind of a result of this process that you went through?
Or how much of that was already in place? And what kind of new management team due to the assets that maybe the previous management team wasn't focused on?
Well, look, I mean it's safe to say, 1st of all, the strip business has been extremely well run. And that's not necessarily the way they operate is not necessarily going to change. But the fact of the matter is they've had a number of opportunities that, that team has wanted to pursue that we put at the bottom of the list because we were focused on outlet growth or major redevelopment. So I do think and there's a couple of new phases and new development, ground up development in the strip center business that that team will be executing that we had at the bottom of the list frankly just because we have been more focused at the executive level with the higher the larger assets. Now with respect to the malls, I think it's human nature to always focus on the bigger malls.
So I do think though we run these well, I do think that an executive team that is absolutely charged to grow this business will execute it. Even though we've been pretty good, I think they'll execute it better. And we're going to help. I mean Rick is going to be the Chairman. I'm going to be a Director.
We're going to help them grow. But the fact is, Steve, we've got a team that we're going to move there. So it's not as if we're creating this out of whole cloth. We've got the team. We're going to add to it.
And we've got internal candidates consider kind of what we call the executive spots. But at the end of the day, we think there is opportunity to continue to move the business because it's naturally there's only so many hours in the day for our personnel.
Okay. Thanks.
Sure. And
your next question comes from the line of Dan Oppenheimer with Credit Suisse. Please proceed.
Thanks very much. I was wondering if you can talk in terms of the you mentioned how this will be an acquirer asset in touch. I really can look at the there's some real regional concentration right now, how do you think about that in terms of the what you like in terms of SpinCo over time? And would you like to be concentrated or selling off some of the assets that were fairly dispersed from the others? Or will you plan to grow in some of the other areas across the country?
Well, you broke up there in the thing, but I did hear I mean, I think SpinCo's view will it will continue to cull some of the assets, not many, but there might be 1 or 2 or 3 that they might look to sell. And in fact, before it's all effective, there might be 1 or 2 that are sold prior to that. So there may be slight changes in the portfolio between now and the effective date. I think the focus will be on the Open Air element given the historical benefits that the Strip team has done for SPG. I mean, if you look at Waterford Lakes in Orlando as one of the assets here, you can see that that team actually found the site, developed it and grew it into one of the best open air power center developments in the country.
At the same time, we do think the ability to manage the smaller malls with a lot of the common retailers will again be something that team can add value to. And again, I'm not sure I am hitting your questions because you did break up there. So let me know if I didn't.
Sure. I guess it's mostly about regional concentration we've got. The other question, wondering about you mentioned 90.4 percent occupancy. Wondering how substantial the any temporary occupancy would be within that if you would break out permanent versus temporary?
Well, we don't we as you know, we don't percent occupied, it would look 100% generally. But so that includes the way we define it. So we don't really have what I'd call temporary occupancy in that number. It's got to be at least over a year. Okay.
Thanks.
And your next question comes from the line of Jim Sullivan with Cowen Group.
David and Rick, I'm curious the initial composition of Finco is 30% strip, 70% malls in terms of NOI. Based on your comments, David, is it safe to assume that we're going to see those percentages become more like fifty-fifty in the near term?
I would probably I don't know if it will get there, but I do think that it wouldn't surprise me over time. It's going to be up to the team, obviously, but wouldn't surprise me over time that the Open Air element of the portfolio would increase. So those percentages would balance more than they are today. It wouldn't surprise me. Plus, there may be a couple of the smaller malls that might be sold.
So I think that's a reasonable expectation, Jim, over time.
And also further on in that question, to what extent is it possible that some of the some of those regional malls given what's happening in the big box world might be converted to a tenant mix which is more comparable to a strip center tenant mix?
Well, Jim, it's Rick. Let me there are two examples in SpinCo that highlight that precise point. We literally opened this year an asset called University Town Plaza that was a mall that this strip center team converted into a power center anchored by Sears and Penny and added Burlington Academy Sports, Toys R Us and Small Shops did the same thing at Richardson Town Square where we added a Lowe's. And so the expertise and the relationships that this team has with those tenants will certainly be brought to bear in a more emphasized way inside of this portfolio and we would certainly anticipate that they will bring forth additional opportunities to add retailers that they've got relationships with into this portfolio.
And also further on that Rick, to what extent if at all have you been having discussions with Sears and Pennies about buying some of those boxes?
Well, the bottom line is that we're obviously always planning alternative scenarios should boxes become available. To date, we've not had any opportunity that we felt was mutually beneficial to pursue. Should an opportunity present itself, we've already have lists of tenants that would be interested. We've got plans. And in some instances, we're actually pursuing approvals in anticipation of an opportunity.
But until one presents itself, we're just going to continue running the business the way we have been.
Okay. And then finally for me. You indicate comparable NOI growth for SpinCo of 2.2 year to date. Is it possible to break that out by the 2 component parts what the growth rate is for strip centers versus malls?
Sure. We don't have that, but it's something we can put in the Form 10.
Okay, great. That will be very helpful. Thank you.
I should say we have it. We don't have it right in front of us. Okay. But the Form 10 does require audit financials. And they're basically almost essentially done.
We're just wordsmithing the document. But that kind of stuff that kind of information will be in there, Jim.
Okay. Thank you.
And your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.
Yes. Hi. Good morning, guys. Congratulations on the transaction. From a competitive standpoint, I'm curious, the same people are basically running both companies.
And I mean, I wouldn't want to compete with Simon. I'm wondering if Stifel is going to be able to compete with Simon or
if that's going to come up?
Well, again, for some reason we're having some technical difficulties. But look we think it's not necessarily going to compete. I mean Simon will not be in the strip center business and Simon is not going to be in the smaller enclosed mall business. And we're going to act as fiduciaries as directors and which will be helping the executive management team put the plan together. We couldn't think of a better way to get a company of this scale and nature up and running than to have someone like Rick to be Chairman and me to help as well.
So we think it's the right thing to do. And we're going to be a shareholder in this. So we want this thing to do very well. And I don't anticipate given where SPG is headed and given the opportunities where spin opportunities lie, I just don't see the realistic scenario where the 2 are competing. If in fact there is some odd scenario where that does happen, we'll act like fiduciaries and recuse ourselves.
There'll be an independent board, Rich, and we'll handle ourselves appropriately. But again, we want to make a commitment both personally, professionally that this SpinCo is going to be a good very good scalable company. That's why the balance sheet is the way it is with good stable assets, with very good management team to grow its business. And as we look at the competitive landscape with what Rick and I know, we think this company will be successful. And we got a 20 year track record to give us confidence that comes with that conclusion.
So again, if there's some odd scenario, I don't foresee it, we'll recuse ourselves and the company SpinCo that is we'll be able to act in accordance with all the highest fiduciary duties that are expected.
Okay. I don't know if
you can hear me better David. But also I wanted
to ask you on the market strategy. I noticed just looking through the list, like for example, in my hometown of Albuquerque, you're keeping 1 and getting rid of 1. And I'm curious if there's any kind of broader market strategy to how you split these things up?
Well, they really don't overlap in trade area. And again, it was done with the idea with this the whole demarcation from an NOI point of view. So that's really how we concluded that there is the chance that as I said to you, we're still going to need some partner approvals on some of these assets. The portfolio may adjust between now and when the spin off is effective. But effectively, it was along the lines that we discussed going forward.
Okay.
So exiting a particular market is not really part of the strategy?
Not at all. Not at all. And there's many scenarios where there's a strip in a market. And Indianapolis is a good example. The strips are going with the strip guys.
And Austin, they've built a bunch of strip centers. We still have the malls. And the strip centers are going with SpinCo. So it really wasn't a market issue. It was more of a product type issue.
Okay, great. Thanks guys. Sure.
And your next question comes from the line of David Harris with Imperial Capital. Please proceed.
Hey, good morning. Happy 20th birthday, guys.
Thank you.
No more than I'm aware.
It's one of these early starts again, David. Rick, in a year's time when you've got management in place, the company is established, how much of your time are you going to be given over to your duties for SpinCo?
Well, I must tell you that we're doing we've been doing it all historically. So it's not going to be an incremental focus in that we're already involved with the capital allocation decisions. We're already involved with the leasing decisions. We literally had a capital plan yesterday where they're renovating 3 additional power centers and adding some additional boxes. So I'm sure there'll be an incremental allocation of a
dedicated
a dedicated management team, they're going to come up with many more external opportunities to grow than we entertain previously. And I fully anticipate that the incremental time that will be spent will be on external opportunities. The internal opportunities we've been doing and I expect that these things will continue and we will continue to produce our NOI growth through running these assets the way we have on a heritage basis. But I expect there'll be much more activity externally.
I would just say, I think you should look at Rick and Mai's role as mentoring the SpinCo executive team. Now remember, we've got already the strip center management team that's going to go into SpinCo. And then we're going to complement that with other traditional executives like CFOs and General Counsel, Chief Investment Officer. Those roles, CEO And it is and we're reviewing internal and external candidates for those spots. Our job really is to mentor.
And obviously, the 1st year or so we'll be more involved. But we'll then act as directors, which is outlining the strategy, making sure they're hitting their financial and operational objectives and mentoring the executive team. But we won't be running it day to day. And again, there'll be some added focus in the next year or so. But then I think you should think of us.
Now Rick will have a higher responsibility because he's Chairman, but I think you should look at us as directors of a public company whose job is it to mentor, review strategy and all of that sort of stuff that directors do.
Okay. Now how close are we to concluding on the directors? Sorry, I've met a terrible echo here, but hopefully you can hear me. On the sorry, the executive, you're hoping to spin this out Q2. Are we could we assume that you're going to have the senior appointees in place by the end of the Q1?
I think that's reasonable objective. I think we expect this to happen in the early Q2.
Okay. So this goes back to an old chestnut I raised with you David about 3 years ago. If the objective here is to create shareholder value, did you seriously look at spinning out the outlet as a possible way to enhance shareholder returns? Or is that just too tied synergistically with your upper class, upper end quality malls?
It is too tied, David. And the fact of the matter is the amount of time that the executive team spends in the outlet business is what's created the success. So let me give you an example. When we bought the outlet business roughly, the NOI of the business was 400 some odd 1,000,000. Today, it's $1,300,000,000 So that wouldn't have happened had it not been the executive team.
So I think from a shareholder point of view, it would be a horrible mistake to separate that business from the executive team that's led to that kind of growth. In the history of real estate transactions, there's been few that have been successful as what we've done in the outlet business. And it's not by osmosis, it's by day to day focus, effort and dedication. And we really transform that business. So not sure that would make any sense at all.
Right.
Now you actually gave us a split of the NOI between your ship molds and the premium outlets. The first time we've seen this for what 3 or 4 years now. Is that going to be a go forward disclosure for us?
I think at this point, we'll consider that. You now have the sales per square foot in our malls at 625 after the spin. You've got the premium outlets at 606.
The composition of NOI.
We've got the composition of NOI. So there's more data there for you to
chew on. Small steps, David, small steps.
Good, good, great. Thanks guys. Bye. Happy birthday again.
And your next question comes from the line of Michael Bilerman with Citi. Please proceed. Yes.
Just quick follow-up. In terms of the financial impact, so over $400,000,000 of NOI goes forward, what's the rate on the $1,000,000,000 of debt that's being transferred over? And then is there any G and A efficiency savings at Simon as we think about sort of when we split the baby a little bit, what amount of FFO is effectively being lost at Simon?
Well, Michael, this is Steve. The rate on the $1,000,000,000 of debt is about 5.75%. We give you a roadmap to tell you that the FFO SpinCo is about $300,000,000 or about $0.80 a Simon equivalent share. I mean, obviously for a model, you'd have to make a determination about what you're going to do with that $1,000,000,000 of capital that's going to go back into Simon. But I think for purposes right now, I think thinking about $0.80 a share of FFO on an annual basis, coming out of Simon and going to SpinCo is a fair run rate.
The G and A impact, Michael, is minimal.
Yes. I do look SPG will have reduced its this is an important point because as you know we have essentially the lowest G and A load for the portfolio that we run. The scale that exists in SpinCo, we believe will again have one of the best G and A loads compared to its peer group. So we expect that efficiency to translate to SpinCo because we in fact know how to do it. And the SPG will be losing the overhead dedicated to the strip center business.
But as we look at the economies of scale, we're convinced that SpinCo and ultimately SPG will continue to have the most effective G and A load in the industry.
Well, that's what I was right. That's what
I was trying to think about. If the company call it is call it a $5,500,000,000 entity, how much G and A will SpinCo need to support its operations? I assume there's some leakage between the 2 just because you're going to have multiple 2 CFOs, 2 CEOs and things like that.
It will be de minimis in the scheme of things. And we'll you'll see some of this in the Form 10 that will lay it out, but it will be de minimis. And again, even with that added cost, because you're right, there will be an executive team, you'll have a Board of Directors and that sort of stuff. But at the end of the day, the load at SpinCo will be better than its comparable peer group. And that was very important to us to achieve.
That's why the scale of SpinCo as we thought about it and put it together, we thought it was kind of the right scale. Not only that, but to also have to be an important company with important retailer relationships. So we're balancing that. We think we found it.
And I appreciate your opening comments in terms about looking at the range of alternatives that you had to pursue, whether it be merger sales and that this effectively is the most tax efficient and allows shareholders to benefit from the combined growth of both entities with still some level of Simon involvement. I'm just curious from a strategic standpoint how wide that process was and whether the fact that you've come out with this now could potentially change how this entity goes into the public markets if you get approached by existing public companies? How wedded are you to the spin off idea?
Well, we like it, obviously, a lot. Otherwise, we wouldn't do it, Michael. But we're fiduciaries. So we would look at any and all transactions. But we like this.
We like what we've done. We clearly think it was better than the other alternatives out there. And otherwise, we wouldn't go forward. But we're focused on creating value, whether it's through sales, spin, acquisition, what development what have you. And I just think that's one of the things.
But I will tell you that having spent a lot of time on this over the last year plus, we feel good that this is going to be a very good company in this industry.
And then just last question just about sort of Simon going forward, 114 or so malls doing 625 a foot, your 66 outlets in the U. S. Doing north of 600. You've been a very good you've sold a lot. The market doesn't give you any credit for selling $3,000,000,000 of assets over the last few years, but you have been selling assets.
How should we think about these $114,000,000,000 Is there further things that you can do that asset set didn't fit into SpinCo, but basically even getting the sales productivity and the effective new Simon up even further, you think about your top 100 assets doing $750 a foot. Clearly, there's still a number that maybe don't fit within. I'm just curious how you're sort of thinking about continued sale activity.
I think it's a good question. I think we will continue to upgrade the portfolio whether we think it's appropriate to sell it or through redevelopment and the like. I mean, there are some properties that might have fit in here, but because of the joint ventures, it was a little tricky. And that's why I will tell you that the portfolio may modestly change between now and the effective date. We'll see how that plays out.
But I would say in terms of that Michael, you're right. We have sold stuff. We're going to none of that will change. We'll continue to be aggressive portfolio managers of our business. And so I don't I think that will continue to be a focus.
And just we sold a few outlets here and there, we'll continue to prune that portfolio as well. Great. Well, congratulations. Thank you.
And your next question comes from the line of Jeff Donnelly with Wells Fargo. Please proceed.
Good morning. Steve, what's the one time costs that are associated with the transaction?
Jeff, it's a fair question. Jeff, it's a fair question.
I'd say it's a little early yet.
I mean we're obviously we've engaged lawyers. We're going through the process of auditing the financial statements of SpinCo. Most of the costs will be costs related to preparing and then declaring effective the Form 10. But I'd say it's a little early for me to tell you what the number is going to be.
Okay. And is SpinCo assuming a portion of Simon's unsecured debt? And I guess if so, what's necessary to make that transfer happen?
They are not. All of the unsecured debt will stay with Simon. Debt will stay with Simon and SI. Now SpinCo as part of that additional $1,000,000,000 at least $1,000,000,000 of debt that we're going to place on SpinCo. Part of that may very well be and will likely be unsecured.
But all of the bonds that Simon has outstanding will stay with Simon.
I have to ask is Steve Stearitz staying with Simon's unsecured debt?
Steve Starett plans to stay with Simon's unsecured debt. Yes. I guess that I should be flattered by the question, but
Thanks. And one last question, I guess for David. If your spin off ultimately leaves Simon with a more attractively valued currency for the core SPG business, Does that shift your thoughts maybe about consolidating your U. S. Peers that caused you to say reinvigorate maybe that thinking?
I don't know. I mean, look, I put it this way, people know my phone number. No one's called recently. So I don't worry too much about that. We have a great opportunity.
As we said for the last couple of years, our biggest opportunity is redeveloping our existing portfolio. We're in the midst of that heavy and hard. We're building great new outlets. So we've certainly got plenty to do. But if you have a good idea or somebody wants to give me a phone call, you know my number.
I'm not out calling on people because I figured they know my number.
Thanks. I appreciate it.
Sure. And
your next question comes from the line of Mike Mueller with JPMorgan. Please proceed.
Yes. Hi. I guess a lot's been asked and a lot of questions been answered already. But was the decision to do this more driven by trying to get the right valuation for the mothership, the bigger assets that you're going to own going forward? Or just kind of trying to ramp up the SpinCo business and see it grow faster?
I think we see the essentially 98 assets. So that's we've essentially 98 assets. So that's a lot for the executive team to say grace over. And by unleashing those 98 assets into SpinCo with what we'll think will be a very good executive team, certainly going to allow for opportunities for that company to grow. At the same time, obviously, for mostly not Simon specific stuff, but I wouldn't think, but given our growth and our earnings results and etcetera that we have been we think Simon Property Group's got as a great value that SPG will have going forward.
And I will say, almost like Michael said, I think part of the dilemma that we have is that it gets lost in the soft the amount of stuff that we do day in and day out because of the size of the company. So we're always marveled about, well, we do that every day, but when a peer does it, it's like something very interesting. So if that can help shine a little bit brighter light on the quality of the organization and the portfolio and a little bit more of the attributes that we bring to the table, I think that's good for our shareholders at the end of the day.
Yes. And for SpinCo, do you think the opportunity is greater, I guess either looking at the existing portfolio, leasing it up, redeveloping it or playing a role as a consolidator?
I think they're going to have both. And that's as directors, We're going to put the right team together that's going to be able to balance those 2.
Okay.
Okay. Thanks.
Sure.
And your final question comes from the line of Tim Kiebink with SunTrust. Please proceed.
Thanks. Just a couple of quick follow ups here. When you guys go to the table with national retailers, would this be more on a coordinated business with Simon and SpinCo? Or would it be much more separate? It'll
be done by the SpinCo team
ultimately.
There'll be a period of time where certain leasing folks are leasing some of the malls during a period of time. But ultimately SpinCo will be driving the retail relationships.
Okay. And when I go to your mall list, not surprisingly a lot of the malls are anchored by J. C. Penney and Sears. How much of this is your internal view or opinion about the future of those retailers and your choice to perhaps eliminate some of that risk?
This did not factor in at all.
Okay. Okay. And just last quick question here. It was interesting on your comments about evaluating different avenues for selling these assets. Just curious about what was the market telling you or advisors or what have you not about the valuation of this portfolio?
And so what was the market willing to pay you a
cap rate
standpoint for these assets that ultimately made you decide to spin off instead?
I mean the fact is that the interest in assets like these is great. But when we factored in the growth potential and what we where we think SpinCo will trade. We just thought it's best interest given the tax ramifications of selling. Without question, we think this is a better from a financial point of view for our shareholders. So there's a lot of activity out there.
There's no question in my mind that there's the institutional and investor that would covet a portfolio of stability, quality and scale like this. But we concluded that let's give that opportunity to our shareholders as opposed to the guys that like to skim off the top. So we're delivering this value to the shareholders and that's what makes us excited. Okay.
Thank you and congrats.
Sure.
At this time, we have no further questions. I will now turn the call over to Mr. David Feynman for closing
remarks. Okay. Thank you. Again, I'm sorry it's early and I'm sorry it's Friday 13th and I'm sorry it's near December. But obviously, you'll see more of this and we're happy to talk to you over the next quarter as you see this move forward.
Happy holidays. And again, thanks for your interest.