simon property group (spg) earnings report: q1 …q1 2016 conference call transcript the following...
TRANSCRIPT
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
©2014TheStreet,Inc.Al l R ightsReserved Page1of21
SimonPropertyGroup(SPG)EarningsReport:Q12016ConferenceCallTranscriptThefollowingSimonPropertyGroupconferencecalltookplaceonApril26,2016,11:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
TomWard;SimonPropertyGroup;VicePresidentofInvestorRelationsDavidSimon;SimonPropertyGroup;Chairman,andChiefExecutiveOfficerRickSokolov;SimonPropertyGroup;PresidentandChiefOperatingOfficer
OtherPart icipants
MichaelBilerman;Citibank;AnalystChristyMcElroy;Citibank;AnalystGregSchmidt;BankofAmerica;AnalystJeffSpector;BankofAmerica;AnalystAlexanderGoldfarb;SandlerO 'Neill;AnalystCaitlinBurrows;GoldmanSachs;AnalystRossNussbaum;UBS;AnalystHaendelSt.Juste;Mizuho;AnalystJeffDonnelly;WellsFargo;AnalystPaulMorgan;CanaccordGenuity;AnalystTayoOkusanya;Jefferies;AnalystCarolKemple;HilliardLyons;AnalystKiBinKim;SunTrust;AnalystVincentChao;DeutscheBank;AnalystMichaelMueller;JPMorgan;AnalystFlorisvanDijkum;Boenning;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometotheSimonPropertyGroup,Incorporated'sfirst-quarter2016earningsconferencecall.
(OperatorInstructions)
Asareminder,today'sconferencecallisbeingrecorded.
Iwouldnowliketointroduceyourfirstspeakerfortoday,TomWard,VicePresidentofInvestorRelations.Youhavethefloor,sir.
T omWard (VicePresidentofInvestorRelations):
Thankyou,Operator.Goodmorning,everyone.Presentingontoday'scallisDavidSimon,ChairmanandChiefExecutiveOfficer.
AlsoonthecallareRickSokolow,PresidentandChiefOperatingOfficer;AndyJuster,ChiefFinancialOfficer;andSteveBroadwater,ChiefAccountingOfficer.
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
©2014TheStreet,Inc.Al l R ightsReserved Page2of21
Beforewebegin,aquickreminderthatstatementsmadeduringthiscallmaybedeemedforward-lookingstatementswithinthemeaningoftheSafeHarborofthePrivateSecuritiesLitigationReformActof1995,andactualresultsmaydiffermateriallyduetoavarietyofrisks,uncertainties,andotherfactors.Wereferyoutotoday'spressreleaseandourSECfilingsforadetaileddiscussionofforward-lookingstatements.
Pleasenotethatthiscallincludesinformationthatmaybeaccurateonlyasoftoday'sdate.Reconciliationsofnon-GAAPfinancialmeasurestothemostdirectlycomparableGAAPmeasuresareincludedwithinthepressreleaseandthesupplementalinformationintoday'sForm8-Kfiling.BoththepressreleaseandthesupplementalinformationareavailableonourIRwebsiteatinvestors.simon.com.
Forourpreparedremarks,IampleasedtointroduceDavidSimon.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Okay.
Wehadastrongstartto2016.Wecompletedseveralsignificantredevelopmentprojects,startedconstructiononothers,announcedmorethatwewillfurtherenhancethevalueofourrealestate.WecompletedtheacquisitionofTheShopsatCrystal,extendingourpresenceintheLasVegasmarketplace,andwecontinuetoachievestrongoperatingandfinancialresults,whichwerehighlightedbyFFOof$2.63pershare,whichisanincreaseof15.4%comparedtoprioryear.Wehadstrongkeyoperatingmetrics.
Mallandpremiumoutletopportunityoccupancywas95.6%.Leasingactivityremainshealthy,whichwe--themallandoutletbusinesshadreleasingspreadsof$10.24persquarefoot,whichisanincreaseof17.5%,andourbaseminimumrentwas$49.70,upmorethan$0.4--4%comparedtolastyear.Totalsalespersquarefootforourmallandoutletbusinesswas$6.13comparedto$6.21intheprioryearperiod.
Wemeasureoursuccessthroughgrowthofoperatingincomeandcashflow.WehaveauniqueabilitytodrivegrowththroughnotonlyincreasesincomparablepropertyNOI,butalsothroughdisciplinedcapitalallocationfornewdevelopment,redevelopment,acquisitions,andinvestments.Inourpressreleaseandsupplementthisquarter,wehadprovidedadditionalnewmetricssummarizingthecompositionofourtotalportfolioNOI.
Thesenewmetricsprovidefurtherdetailontheprofitabilitygeneratedbyourportfolio,andwehavebrokenthemoutintofourcategories:comparablepropertyNOI;NOIfromnewdevelopment,redevelopment,expansionsandacquisitionsthatarenotincludedincompNOI;NOIfromourinternationalproperties,whichisourpremiumoutletsanddesigneroutlets;andthenourshareofNOIfrominvestments,whichincludesKlepierreandHBSGlobalProperties,andthenbelowthepropertyNOIline,youhavethecorporatesourcesofNOI.And,importantly,forthefirstquarterof2016,ourtotalportfolioNOIincreased7.8%ofwhichcompNOIincreasewas5.1%.Pleaseseethesupplement.
Attheendofthefirstquarter,redevelopmentexpansionprojectswereongoingin33properties.Acrossallthreeofourplatforms,ourshareapproximately$2billion.Wefinishedthetwo-yeartransformationofRooseveltField,includingcomprehensiveenhancementsthroughoutthemall,theadditionoftwo-levelfashionspecialtystoreexpansionwith--beinganchoredbyLongIsland'sfirstNeimanMarcusstore.
WealsoarenearingcompletionwithStanfordCenter,includingthenewBloomingdale's,aswellasreclaimingthatspaceforspecialtystores.Transformationsliketheseareexamplesofwhatisaddingtoouroverallprofitability.Westartedconstructiononseveralnewprojects,includingtheimportantexpansionatTheOutletsatOrange,andconstructioncontinuesonothermajorredevelopmentandexpansionprojectsatsomeofourmostproductivepropertiesandsomeofthebestpropertiesinthecountry:TheFashionCentrePentagonCity,KingofPrussia,WoodberryCommon,theGalleryinHouston.
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
©2014TheStreet,Inc.Al l R ightsReserved Page3of21
Mostoftheseprojectswillbecompletedinthenext12months.
ConstructioncontinuesontwonewdomesticoutletsinColumbusandClarksburg.Botharescheduledtoopenlaterthisyear,aswellasourdesigneroutletinProvence,France,whichisscheduledtoopeninthespringof2017.
Wealsostartedconstructionduringthequarterwithourpartner,IvanhoeCambridge,onourfourthoutletinCanadainEdmonton,Alberta,whichisscheduledtoopeninfallof2017.Constructioncontinuesontonewfullnewpricedevelopments,oneinMiamiatBrickellCityCentreandtheotherinFortWorthatTheShopsofClearfork,whichisscheduledtoopen2017.
Brickellwillopeninthefallofthisyear.WealsocompletedtheacquisitionofTheShopsatCrystal.Purchasepricewas$1.1billion.Weplantoplacea$550millionmortgageonthepropertyinthenexttwomonths,andwearea50/50partnerwithInvesco,andwelookforwardtobuildinguponhighqualityassetwithitssuccessfulfoundation.
WeacquiredamajorityinterestinaleadingoutletcenterinOchtrup,Germany,withourpartner,MacArthurGlen.Andduringthefirstquarter,wesoldinterestintworesidentialpropertiesandonenoncoreretailproperty.Asyouknow,gainsandlossesonournonretailassets,includinginvestments,areincludedinourFFOpershare,whichwebelieveisconsistentwiththewhitepaper.Thisresultedinaquarter-over-quarterbenefitofapproximately$0.06.
Capitalmarkets,wecompletedanotesofferingof$1.35billion.Weightedaverageinterestrateof2.97%and8.2yearsofduration.Ourliquiditystandsat$6billion.Weannouncedourdividendat$1.60,whichisayear-over-yearincreaseof6.7%.Weincreasedourguidanceto$10.72to$10.82,reflectingverygoodperformance,andweareverypleased,frankly,withouroverallperformancegivenanoveralllacklusterUSeconomy.
Andwewelcomeyourquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
ChristyMcElroy,Citibank.
MichaelBilerman (Analyst-Citibank):
ItisMichaelBilermanwithChristy.IjustwantedtogofirstandthenChristywillhaveone.IwaswonderinghowthemarketshouldthinkaboutSimonstrategicallygoingforward.ItisabouttwoyearstothedaywhenyouspunoffWPG--alltheassetsunder$10millionofNOIandarguablylowersalesproductivity.
Andnowyouareleftwiththisimmenselyhighqualitymallportfolio,aglobaloutletportfolio,themillsportfolioandastakeinKlepierreandsomeotherventuresaround.Shouldwethinkaboutpotentialspinsofanyofthosebusinessesgoingforward,ordoyouthinkyouarestillgoingtoownassetsacrossthepricespectrumofretailrealestate?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Yes.Wehavenointentiontospinoffanyotherassets.Wethinktheyareabsolutelysynergisticacross--withourretailerrelationships.Wehadthelowestoverhead,lowestcostofcapital,giventheportfolio.WehavegothistoricallythebestcompNOIgrowth.So,aslongaswecancontinuetodowhatwearedoing,Idon'tseeanyreasonwhywewouldwanttospinanythingoff,andtheyallfitnicelytogether.Theyareall
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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inmajormetromarkets.Alltheassetsareproducinggreatcashflow,andourresultsspeakforthemselves.
IthinktheWPspinoffwasreallyafocuson--wewerealittle--wewerenotfocusingasmuchonthesmallerpropertiesasprobablyweshouldhave,andwethoughtthatwasinthebestinterestoftheshareholders.Butwedon'tseeanyotherreasontotakeanyothercorporaterestructuringbeyondwhatwedid.
ChristyMcElroy(Analyst-Citibank):
JustwonderingifAeropostaleandPacSunstopspayingyourentatanytimeduringthefirstquarterandifreservingforthatmighthaveimpactedyourbaddebtatallinQ1?Andmaybeyoucouldgiveusanupdateonyouroveralloutlookforretailorbankruptciesandstoreclosingsforthebalanceoftheyearandwhetherornotyouaremoreorlesscautiousversusaquarterago?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,I--look,Ithinkaquarterago,wewerecautious.Wecontinuetobecautious.Idon'twanttomentionspecificretailers,whethertheypaidrentornotpaidrent.TheonlyonethathasfiledbankruptcythusfarisPacSun.Iamsurethereweresomeprepetitionamountsthatwewroteoffinthequarter.Imean,itisnotoverlymaterial,andthatispartofwhatwehavedealtwithfor60years,retailbankruptcy.
Soweremaincautious.OurbiggestreasonwearecautiousisthattheUSeconomycontinuestoflattenout,andthereisnotalotofgrowth.IsuggestyoulookatalotofindustriesbeyondrealestatetoseewhatisgoingonintheUSeconomy,anditiswhatitis.Butwehavebeencautiousonthosecoupleofretailers,butwewilldealwithit.
Operator :
GregSchmidt,BankofAmerica.
GregSchmidt (Analyst-BankofAmerica):
Inoticeotherincomeandconsolidatedpropertieswasupsignificantly.Wasthatrelatedtoonespecificarea?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,Iwouldsuggestyoulooktopage21onoursupplemental.Ourcorporate--thisisafterourpropertyportfolioNOIcorporateandothersourceswereuproughly$20million,andthatwasafunctionoftheresidentialinterestthatwehadthatflowedthroughourcorporateNOInumber.
GregSchmidt (Analyst-BankofAmerica):
Okay.Andyouhavebeendoingagreatjobtouchingonsomereallybigredevelopments.Ijustwonder,asyoustarttotouchmoreandmoreofyourtopproperties,willtheshadowpipelinestarttoconsiderandincludemaybeasecondtrancheofredevelopmentstocontinuethatpathofgrowth?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,ifyoulookatour8-K,youcanseeallthestuffthatwehavebeenworkingon.Ijustspentanhourandahalfwithmyguythatdoesresidential,which,bytheway,hejustmadeus$20million,whichain'tbad.WesoldthoseatalowercapratethanwhatweboughtCrystal'sat,whichIthoughtwasaprettygoodinterestingdynamicinourindustry.Hehasgot--ourmeetingthatwaslongerthanIwantedittobebecausemyattentionspanisdecreasing.But--asIgetolder--butthefactishehasgot20thingsgoingonacrosstheportfolio.Ifyoulookatour8-K,allthestufftheyaredoing,Ithinkwearetouchingalot.We
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
©2014TheStreet,Inc.Al l R ightsReserved Page5of21
justopenedDick'sSportingGoodsatIndependenceMall,justtogiveyouonesmallexampleofkindofasolidmiddle-marketmallthatproducesalotofcashflowyearafteryearbutcontinue--wethinkcontinuetogetbetter.Andsotheansweris,wearetouchingeverything.
GregSchmidt (Analyst-BankofAmerica):
AndjustbringingupCrystal's,isthereanexpansionopportunitywiththe[Harman]powersonthatproperty?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Yes.
Operator :
JeffSpector,BankofAmerica.
Jef f Spector (Analyst-BankofAmerica):
Justwantedtoaskabouttheretaillandscape.IfeellikealltheyearsCraigandIhavebeencoveringthesector,thispastyearwehaveseensomerealdramaticchanges.Howhavethingschanged,inyourview,justfromayearagowhenyouwereplanning,whetherwiththeleasecontractsoryourapproachwithretailers?Whatareyourlatestthoughts?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,honestly,Ithinkmaybeyou'regettingcaughtupinalotofthemediadiscussions.Imean,ourbusinessisassolidasithaseverbeen.WehavehadcompNOIincreaseof5.1%.Ourearningsgrew15.4%peryear.Weareprojectingtohave$10.72to$10.82.
SoIthinkoursimplisticviewisitisnotasbadaspeoplewanttowriteabout,andIthinkthebiggestissueoutthere,frankly,isthatwehaveaUSeconomy--andwewillneveruseexcuses,butIthinkyouhavetolookatourperformanceinconjunctionwithwhatisgoingonintheUSeconomy.Andthefactofthematteris,theUSeconomyisflatlining,andyetweareholdingourownandgainingmarketsharewithalotofourproperties.And,obviously,wehavegotgreattourist-orientedcentersthathavehadatoughyear.Afterthisfirstquarter,wewillprobablyanniversarythestrongerdollarherecomingup.Butwehaveseenthetourismsalesdecrease,notnecessarilythetraffic.Butthemediaaboutthedeathofthisandthedeathofthat,wedon'tseeit.
Demandisfine.Propertiesaregettingbetter.Wegotsupplyanddemandinourfavor.NooneisbuildingClassAoutletsormallstoanydegreeableissue.Certainly,therewillberetailspacethatgetsrepurposed,whichwillhelpus,obviously,insupplyanddemandequations,andIjust--Idon'tviewitbeyondthat.TheInternetisnotthepanacea.AlotofCapExhasbeenspentthereandnotshowingthereturnsforourretailers.SoIthinktheyaregoingto--theirbiggestandbestopportunitycontinuestobebricksandmortar,andwekeeppluggingalong.Idon'tknowifthatanswersyourquestion,butthatishowweviewitfromhere.
Jef f Spector (Analyst-BankofAmerica):
Okay.Great.
Operator :
AlexanderGoldfarb,SandlerO 'Neill.
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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AlexanderGoldfarb(Analyst-SandlerO 'Neill):
First,thanksforpage21.TheNOIbreakoutishelpful.Aquickquestion.Maybeyoucommentedontheresiupfront,butcanyoujustgivealittlemorecolorwhichprojectstheywere?Andthenaswegothroughtherestofthepipeline,Imean,obviously,youhavegotthetowerthatyouannounceddowninHouston,buthowmuchembeddedpotentialisthereintheportfolio?Andiseachprojectthatyouguysundertakesomethingthatyou'regoingtoharvestthemselves,soweshouldexpectoverthenextseveralyearsmoreofthese$20millionquarterlybenefits?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Yes.Look,Ithinkwetendnottobelong-term.Welookatthesethingsmoreasinvestmentsthanwedooperatingproperties.Thathasbeenourpointofview.JustlikeinQ1of2015,wehadagainfromadevelopmentsitewedecidedtoflipinEuropeasopposedtostayinvolvedin.
Sothegoodnewsisthatweareabletocreate--nowwehavehadafewmistakes.Sowearenotperfect.ButweareabletogenerateadditionalincomeinthisCompanythroughallofouractivity,andthathasbeenproven.InQ2oflastyear,asyouknow,wehadabigsizablegaininthesaleofmarketablesecurities.SopleaserememberthatwhenwereportQ2.Soweareabletodothat,andwedolookatinvestments.Whetheritisinhotels,residential,wedolookatthemasinvestments.Andwedo--cando--lookatthoseasoncewearenotgoingtoownfor30,40,50yearslikewedothevastmajorityofourretailholdings,andthatwillflowthroughtheP&Lasrightlyso.ThatisGAAPaccounting,bytheway,whichhappytoexplainanybodythat(inaudible)GAAPaccounting.AndIdothink,withthelistofalltheactivity,you'regoingtoseethatepisodically,butcertainlyconsistentwithhowwearegoingtodriveourcashflowgrowth.
Now,specifically,wesoldFirewheelresidential,andwealsosoldSouthPark,which--additionally,whichgoestoshowyouhowthingscanchange.WeactuallydidSouthParkasacondodevelopment.Themarketcrashed.Weactuallywroteoffourinvestmentinthat,andthatwentthroughFFO.Andthen,nowourinvestmentinthatwasnotbig,soIthinkitwaslike$3millionor$4millionofequity.But--andthen,itturnedintoaresidential,notacondobutjustamulti-familyproject,andwejustsoldit.Thetwoofthem,asIsaidtoyou,wethoughtthecaprateswereveryaggressive.Ourpartnerswantedtosell.Weviewthose,likeIsaid,asinvestments,sowedecidedtosellthem,andtheresultsflowedthroughthisquarter.AndIdothinkwewillhaveapipelineofotherinvestmentsthatwedon'tconsidercoreoutsideofretailalwaysflowthroughourP&L,andhopefully,asIsaid,wehaven'tbatted1000,buthopefullytherewillbealotmoreincominggains.
JustlikeourSimonVentureGroup.Imean,anythingthatisprofitablewillflowthroughFFO.Anythingthatisalosswillwashout.And,infact,wehad--don'tgetpanicky,butwehaveactuallywrittenoffacoupleofinvestmentsthathavejust--wedon'tseethevalue.Sowestillmaybepluggingalong,butwetookaconservativeapproachtogoaheadandpushthosethroughandthosearethroughFFO.Sothatishowwedoit,butIamhopefulthatwewillcontinuetocreatevalueinallsortsofdifferentways,includingbuildingandsellingresidential.WhenwedoCopleyandpartofthatprojectwillbecondos.Imean,thosewillflowthroughtheP&L.Asyouwouldexpect,thiswouldhappen,andtheywillflowthroughFFObecausethatishowweviewthedefinitionoftheFFOwhitepaper,which,asyouknow,weadheretostringently.
AlexanderGoldfarb(Analyst-SandlerO 'Neill):
Yes.Youguyshavebeenquitevocalonthatpoint.OnCrystal's,canyoujusttalk--Imean,youguysobviouslyhavebasicallyunlimitedcapital.SocanyoujusttalkaboutyourdecisiontoJVthat,especiallyifthereisdevelopmentupside,andhow,especiallyinthatmarket,givenhowitbookcasesthestrip,your
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
©2014TheStreet,Inc.Al l R ightsReserved Page7of21
decisiontoJV?Andthen,otherinvestments,howyoufigureoutifyouwanttodoitwhollyversusbringinginapartner.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,inthiscase,itwasrelativelysimple.Wewereapproachedtopartner,and(inaudible)approachedus,andwefeltitwouldbebeneficialtodoajointventure.Theassetsthenhasagreatfoundation.Ithasbeenwellleased.Itdoeshighsalesproductivity,andwearehopefulthatwecouldaddvaluetoitovertimeandwehaveagreatpartnertodothat.Andmaybesomeotherthings.
So,inthiscase,theopportunityreallycamefromthem,andsoitwasnaturaltojustpartnerinit.Thatdoesn'tmean--eachdealsalittlebitseparately.Wemayormaynotpartner.Itdependsonthecircumstances.But,inthiscase,theyreallyapproachedusand(inaudible)approachedus,anditisaverygoodassetthathasbeenwellleasedandmanagedandoperatedbytheownersandtheirmanageraheadoftime,andwehopetheywouldbeabletoaddvaluetoitovertime.
Look,itisnotcheap.But,givenwhereAqualityassetsarebeingpricedinallsectors,Ithinkitisgoingtobeagooddealforusinthenottoodistantfuture.Ithinkitisagoodstart,anditwillgetbetterovertime.
AlexanderGoldfarb(Analyst-SandlerO 'Neill):
Okay.Thankyou.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Areyouguysabletohearmeokaybecausewearegettingcommentsthatyoucan'thearme.Butitsoundslikeyoucanhearmefine.
AlexanderGoldfarb(Analyst-SandlerO 'Neill):
Yes.Youarecomingthroughclearly.
Operator :
CaitlinBurrows,GoldmanSachs.
Cait linBurrows (Analyst-GoldmanSachs):
Iwasjustwondering,again,onthosenonretailgainsthatwereincludedinthefirst-quarterresults,wasthat$0.06gainthatyoureferencedincludedinyourpriorguidance?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Yes.
Cait linBurrows (Analyst-GoldmanSachs):
Okay.Andthen,ifyoulookexthat$0.06impact,thegrowthisstillover10%,butitdoesn'tlooklikeyourfull-yearguidanceisquitethathigh?SoIwasjustwonderingisthereanythingelsedrivingthefirstquartertobeespeciallystrongorjusttryingtoseetowhatextentyoumightbebeingconservativefortherestofyearversusactuallyexpectingaslowdown,albeitfromaprettyhighlevel.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Goodquestion.Firstofall,Ibelieveourgrowthwouldhavebeen12%.
Cait linBurrows (Analyst-GoldmanSachs):
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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Yes.
DavidSimon (Chairman,andChiefExecutiveOfficer):
12%ifyouwantedto,itisuptoyou.Iunderstandwhyyouwouldwantto.Justsay,okay,the$0.06(inaudible)success,butitisactually12%.
And,look,Ithinkweare--aswestarted,Ithinkitisconsistentwithwhatyoudescribedwhenwedidouryear-endcall,isthatwearestillbeingconservativeinhowwearelookingatthebusinessbecause,primarily,notbecauseoftheInternet,notbecauseofthedepartmentstores,notbecauseof--Idon'tknow,butwedohaveexposuretotourism.Thatisobviouslyaffectingouroveragerent.YoucanseethatasplainasdayontheP&L.AndtheUSeconomy,eventhoughitfeelslikeitshouldbegrowing,ismoreorlessflatlining.Idon't--whatdoesGoldmanthinkthefirstquarterGDPisgoingtobethisyear?Whatisyour(multiplespeakers)?
Cait linBurrows (Analyst-GoldmanSachs):
Youaskedmelastquarter,soIlookeditup.1.8%.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Allright.Well,Itaketheunder.Okay.Sowewillsee.Thatisnotconstant,isit?
Cait linBurrows (Analyst-GoldmanSachs):
Iamnotsurewhoexactlyitisfrom.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Allright.Well,weknowyouhavelike10ofthem,soyouwillgetitrightnomatterwhat.Butwearejustbeing--Iwouldsaywearebeingoverlyconservativeandjustbecausethereis--youhavegottheelectionyear.Bytheway,Ihear--itisveryinteresting.WehaveessentiallynoexposuretotheUK,buttheUKissoftening.Itisjust--thereisageneralsofteningworldwideintheworldwideeconomy.AndasmuchasIwouldlovetobeimmunetothat,wecan'tbe.Wearenot.Weareaconsumer-orientedcompany,anditis--weare--basically,theworldwideeconomyisflattening.Thereisalotofstuffoutthere,andwearejustbeingalittlebitcautious.Andobviously,weallknowthereisafewtenantsouttherethatmayormaynotgobankrupt,thatmayormaynotcloseabunchofstores.Wehavegottobejudiciousinhowwemodeltheirfuture.
Cait linBurrows (Analyst-GoldmanSachs):
Gotit.Okay.Andthenalso,ifyoucould--Iknowyoumentioned,asweallknow,touristsalesarenotsogreat.Ifthereisanycommentyoucouldmakejustonthemallsversusoutletsversusmills,eitherinnumbersorjustageneralfeeling.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,Iamhappytosaythatourcompsaleswereupnicelyinthemallbusinessanddownintheoutletbusinessanddownintheoutletbusiness100%duetoourhighproducingtouristcentersandthefactthattheconsumer--thetrafficisnotdown.Thetrafficisupintheoutletbusiness,butthefactofthematteris,theirspendislessbecauseofthestrongerdollar.Andwearegoingtoanniversarythatatsomepointthisyear,butwedidn'tanniversaryityetinthefirstquarter.Safetosay.
Operator :
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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RossNussbaum,UBS.
RossNussbaum(Analyst-UBS):
IamherewithJeremyMetz.David,Ithoughtthefactthatyouguysputupnearly4.5%baserentgrowthinthequarterwasprettyimpressive,despitethesluggishsalesenvironment.ButIguessatleastitleadstothequestionofrealisticallyhowlongcanthatcontinue?Theoccupancycostisupyearoveryearfrom11.7%upto12.5%.
SoIguessrealistically,if,infact,mallsalesareatthesimilarlevelsforthenextyear,doyouthinkwe'regoingtobelookingatoccupancycostsforyourportfoliothatispushing13.5%ayearfromnow?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,again,wecouldargueadnauseam--andIhavelosttheargument,soIwilladmitdefeat.Okay?Iwilladmitdefeatpublicly.Wehavelosttheargumentonthecorrelationorlackthereofofbetweenretailsalesandourabilitytodriverents,whichhappens,Ibelieve,sometimemoretowardsupplyanddemandthanretailsales.Because,asyouknow,ifaretailerisnotproducingresultsandtheirleasehappenstocomeup,wehavetheability,certainly,toreplacethemwitharetailerthatisgoingtobemoreproductive.
Now,asIalsosaid,inthemallbusiness,ourcompsalesareactuallyup.Itisintheoutletbusinesswhereweareseeingthereductionincompsales,andthatisabsolutelyunequivocallytiedtowhatisgoingonwiththetourismpicture.And,asIsaid,hopefullythatwillanniversary,andthenthatbasewillmove.
Now,thecompNOIgrowthwasoutstandingand--forthewholeportfolio,butitwasparticularlygoodintheoutletbusiness.Sothat--itisaveryprofitablecategoryforourretailers,andwehavetheabilitytodriverentsanddriveNOI.
So,atthispoint,wecanargueadnauseamaboutthecorrelation.Iwouldrathernot.Wewilldothebestwecanand,likeIsaid,wearegoingtogrowourcompNOIbetter.Maybeonedaywewillreverttothemean,andIamnotguaranteeingthatwewon't.Butwehavegrown200basispointscompNOIaboveandbeyondtheGDPgrowthbecauseof--Ithinkbecauseourportfolioskewstowardthebettercustomer.AndIamhopefulthatthattrendwillcontinue,andIactuallythinkitismoretiedtowhatisgoingtogoonintourismandwhatisgoingtogooninthegeneraleconomythanitisoneparticularretailersales.Andthatdoesnotnecessarilymeananythingabouttheproperty.ButIhavelosttheargument.Iadmitdefeat.Wewilldothebestwecan.
RossNussbaum(Analyst-UBS):
Allright.Myfollow-upquestionisonyourguidance.IfIfocusinonthecommentyoumade,whichwas,Ithink,$0.03ofthebeatthisquarterwasnotrelatedtotheassetsales,youonlyraisedguidanceforthefullyearby$0.02.SoIguessthequestionis,ifIannualizedthenon-assetsalebeatduringthequarter,itisobviouslyabiggernumberthanwhatyouraisedguidanceby.Areyoubeingconservative,orwasthereanythingelsegoingoninthequarterthatisnotnecessarilyrecurring?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Thereisabsolutelynothinggoingon--Imean,thedisclosure--youseethecompNOI.Youseeallofthat.WhilewecontinuetojustberelativelyconservativegivenwhatisgoingoninthegeneralUSeconomy.And,again,Iamnotusingthatasanexcuse,butthereisalevelof--thereisjustalevelaroundtheworldaboutconsumerspending,growthinwages,electionyear.Westillhavecertainretailersthatmayormaynotimpactus.Maybewebudgetedthemright;maybewedidn't.Noneofitreallyisallthatmaterialforus,thankfully.WebuiltthisCompanytosustaininsandoutsofcertainretailers.Allofthis
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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affectsusonthemargin,asyouknow.Whetheryouslicethisbyproducttype,bygeography,byretailer,youcut,slice,bake--Europe,whatever.Ijustthinkgenerally,weareoperatingappropriatelygiventhegrowthintheeconomy,andagain,ouryearoveryear--ifyoudidn'thearourdeltainquarteroverquarter,Q12015,Q12016wasreally$0.06becauseoftheopportunitythatwesoldinQ1of2015oflastyear.Soifyou'regoingtolookatthedelta,don'tlookat$0.08.Reallylookat$0.06.Ifthatisimportanttoyou.
Operator :
HaendelSt.Juste,Mizuho.
HaendelSt.Juste (Analyst-Mizuho):
Afirstoneforyou,David.Ontheacquisitionmarket,I'mcuriousonwhatyouarehearingandseeingthesedaysinyourconversationswithpotentialsellers.Areyougettingapproachedabitmore?Areyougettingasensethatmorepeoplearewillingtoengageinconversationsthanmaybeayearortwoago,givensomeoftheconcernsaboutthebroadermacrothatyoulaidoutearlier?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Thatisinteresting.Iwouldhavethoughtmaybebutnotreally.Notreally.Asyouknow,wearenotactivelyscouringtheworldfornewdealsand,asIhavestatedtoyoubefore,thebigdealbusinessisnotsomethingonourdrawingboardatthistime.Andthereisaselectivethinghereorthere,butitisnotasif--andmaybeitismypersonality,butitisnota--Iamnotgettingalotofphonecalls.
Rick,areyougettinganyphonecalls?
RickSokolov(PresidentandChiefOperatingOfficer):
Iamnot.NoandIhaveabetterpersonality.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Rickcertainlyhasthebetterpersonality,but--sotheanswerisnotreally,butourbusinessisnoteasy.Itisnotforthefaintofheart.Anditis--whenwehaveasloweconomy,itreallyrequiresalotsofpatience,alotofgrinding,alotoffocusingonthedetail.Sometimesthatcreatesopportunityinitself.Butatthispoint,nothingreallyjumpsoutatme.
HaendelSt.Juste (Analyst-Mizuho):
Gotyou.AndIappreciatethat.Andonemore,ifImightask.Itmightberedundant,butIwashavingalittlebitoftroublehearingyouearlier.But,didIhearyousaythatyouwouldbeputtinga$500millionmortgageonCrystalShops?And,ifso,justcuriousonthoughtsfortheuseofcapital.Isiteffectivelyearmarkedformaybetheredev,orhowshouldwethinkaboutanyexcessproceedsfromthat?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,no.Thesimplistically,itwas$1.1billiondeal.Wearegoingtoputa$550million,thereabouts,mortgageonit,whichwillhavepositiveleverage,whichwethinkisveryimportant,justusinggoodoldRealEstate101fundamentals.Andthebalanceoftheequityrequiredwillbesplitbetweenusandourpartner,Invesco.Simpleasthat.
Andsothereisnoexcessfinancingproceeds.Thefinancingisreallypartofthepurchasepricefinancing--sourcesanduses.
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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HaendelSt.Juste (Analyst-Mizuho):
Gotit.Andthen,onelastone,moreofanaccountingone.Theotherday,obviously,thereisthebigblockfloatedbyyouguysonbehalfofthe(inaudible)of4.4millionshares.JustcuriousifSimonboughtanyofthoseshares,certainly,again,maybenotasanattractiveapriceifyouwanttobet,butjustcuriousifthecompanyatallparticipatedinbuyingdownanyofthoseshares.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,justtobetechnicallyaccurate,wedidn'tfloatit.ItwaspartoftheDeBartolofamilyestate.Andwedidnot--SimonPropertyGroupdidnotbuyanystock.And--but,asyouknow,theshareswereplacedinarelativelyquickandstraightforwardmanner.Wehadnothingtodowiththesaleofthoseshares.ThatwasallbetweenDeBartoloand--theDeBartolofamilyestateholdingsandtheiradvisor.Andtheyhavebeenagreatlimitedpartner,verysupportive.Theyarestillavery,verysignificantowner,andthosearethefacts.
Operator :
JeffDonnelly,WellsFargo.
Jef f Donnelly(Analyst-WellsFargo):
Actually,IhadafirstquestionjustforRick.IwascuriousasweareheadedintoICS,ifbroadlyspeakingtherewasanythemesmaybeyou'rethinkingaboutasweheadouttoVegas?Andmaybemorespecificallyanyprojectsthataremoremission-criticalforyourteam.
RickSokolov(PresidentandChiefOperatingOfficer):
Well,itisinterestingbecause,asDavidhassaid,ourportfoliohasneverbeenstronger,andwestillhavesignificantdemandforourproperties.Andwherewearetotallyfocusedismaximizingtherentsandproductivityofourproperties,andsoourthemesgoingoutthereisthemakingsurewegettherightretailersintherightspacesintherightsizessowecanmaximizeourrevenue.Andweobviouslyarespendingtimedoingthat,but,frankly,forus,ICSCisrelevant,butwehaveretailerscominginhereallthetime.Wehaveamajorretailinherecomingintonightandhereforthenextthreedaysgoingoverthewholeportfolio.
Sowearegoingoutthereoptimistically.Wehavegottenalotofgoodreverseinquiriesastoourspace,andwehavegotagreatportfolioacrossallofourplatformstotryandmarket.
Jef f Donnelly(Analyst-WellsFargo):
Andmaybejustafollow-uportwo.David,somewhatrelatedtothat,howdoyouthinkaboutthepursuitofomnichannelultimatelyplaysoutforretailersdowntheroad?Because,whilebricksandmortar,asyousaid,isthebiggestandbestchanneltodayforretailers,consumersdoliketobuyonline,irrespectiveofwhetherornotitisweighingonretailermargins.
SoIguessI'mcurious.Ifyouthinkforwardafewyears,doyouthinklowermarginsarejustthenewnormalforomnichannelretailersandthat'sallshewrote,ordoyouthinkretailersultimatelyhavetoeffectivelypriceintheconvenienceaspectofbuyingonline,ortakeittotheextreme,doyouthinkthereisgoingtobeatimewhenretailersneedtorestructureanditgivesthemanopportunitytosortofresettheircostbasisandtheironlinebusinessandshedtheweakerstores?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,again,Ithinkthefallacyinwhatistalkedaboutisthefactthatevenifthestoresdon'thavehigh
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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salespersquarefoot,theycouldgeneratealotofoperatingcashflowforthem.SoIdon't--look,ifthestoreislosingmoney,theyaregoingtoclosethestore.Thatisforsure.Theissueisifthestore--thesalesmetricsthatweall--exceptus,butmany--let'ssay--letmerestateit.Manyfocusondoesnotnecessarilytiedtoprofitabilitybecausealotofthesestorescouldhaveverylowrent,couldbefullydepreciated,couldbeinmarketsthatarenotgreat,excitingmarketsthataregrowing,buttheyproducealotofoperatingcashflow.Theyneedthatoperatingcashflowtomakeinvestmentsinwhatevertheywanttomakeinvestmentsin,whetherthatisomnichannelortechnologyornewstoresorwhatever.
Sothestatement,theyarelessproductive,therefore,theyaregoingtoclosestores,isnothowIthinktheylookatit.Ithinktheylookatwhetherthestorehasafour-wallprofit.Andwhetherornot,iftheycloseit,whatdoesitreallydofortheorganization.
Sowhatisthisallgoingtomean?Ithinkattheendoftheday,allretail--retailershavetobeprofitable.Alle-commerceplayershavetobeprofitable,unlessWallStreetandotherinvestorsaregoingtofundthoseinvestments.AndIdon'thaveacrystalballastohowitisallgoingtoshakeout.Coulditputpressureonbricksandmortar?Certainly,itcould.ButIthinkyouhavegottokeepinmindthatalotofthesearecashcowsthattheyareusing.
Maybetheyarenotinvestinginthemlikethewaytheyshould,orwe,asowners,orrealestatewouldliketoseethemdoit.ButIdon'tthinkthatequatestostoreclosures,necessarily.Now,iftheybecomeunprofitable,theyaregoingtoclosethestore.Simpleasthat.Havetoweighthatagainstwhattheychargethestoreintermsofcorporateallocationsandoverheadandallthatandallthat.AndIthinkcertainlyinvestmentsintechnologyisputtingpressureontheretail--theretailerandwehavetobesensitivetothat.ButIthinktheyaregoingtolookatcarefullywhatservicestheyaregoingtoneedtoprovidetotheconsumer.Becauseoftheendoftheday,theychasethatandtheycan'tcreateprofitabilityoutofit.Thatisnotdoinganybodyanygood.
Jef f Donnelly(Analyst-WellsFargo):
Helpful.Andjustonelastquestion.TherehasbeenalotofinkspilledinthefolksinourseedsestimatingtheimplicationofthespinoutofREITsintheS&Punderthenewsectorclassification.IamjustcuriousasthelargestREIT,howareyouguysthinkingaboutthatprospectandanythingyouintendtododifferentlygoingforward,positioningyourselfmaybedifferentlyintheeyesofthatnewerlargerpocketofcapital.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,IthinkwearegoingtobeexplainingtheCompanyandwhatwedoandhowtheyoughttolookatus.Thegoodnewsofthatgroupisthattheylookatcashflowgrowth.Theylookatearningsgrowth.Theylookatbalancesheetmetrics.Theywillcompareustootherindustriesasopposedtojustwithinoursector.Theywon'tbethoroughlyfocusedonNAV,which,again,wecanargueabout.Theywon'tworryaboutaquarterhereorthereofourretailsales.Theyaregoingtolookatwhatkindofgrowthwehaveinourcashflowandinourearnings.AndIthinkthatplaysperfectlywellwithus,giventhekindofearningsgrowththatwehavehadovermany,many,manyyearsandmanydifferentcycles.
Soweareveryfocusedontryingtosolicitthem,whetherornottheyaregoingtobeinterestedandwhetherornotthatisgoingtobeawholenewcategory.Imean,wehavenoparticularcrystalballonthatfront.But,iftheydolookatus,Ithinkwehavegotagreatstorytotell,andtheyaregoingtolookatearningsandcashflowgrowthandknowthatwehavehardassets,whichneverhurtinanycycletohavehardphysicalassets.
Operator :
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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PaulMorgan,CanaccordGenuity.
PaulMorgan (Analyst-CanaccordGenuity):
David,maybeinlightofallofyourcautiononthemacroandtheconsumer,seeifRickcouldofferalittlesunshineandgivesomeoftheconceptswhereweareseeingexpansion,andmaybe,particularlyinthemallexpansionsandredevelopmentsthatyouaredoing,numberone,andthennumbertwo,foranchorspaceswhereyoumightbelookingtoreplaceadepartmentstore.
RickSokolov(PresidentandChiefOperatingOfficer):
Well,first,onthedepartmentstoreside,itisimportanttonotewehaveonevacantdepartmentstoreintheentireportfolioandwehavelike441ofthem.So,again,thenarrativeouttherewouldhaveyoubelievesomethingverydifferent.AndwhenDavidopinedearlier,justastowhatwethinkisgoingtohappenwiththesedepartmentstores,thatwasaveryinformedopinionbecausewemeetwiththeseguysallthetime,andthatiswhattheyaretellingus.
IfyoulookattheactivitythatwehaveputintheK,wehaveasignificantnumberofanchorsthatarecomingintotheportfolio.DavidalwaysmakesfunofmewhenIlistthem,soIwon't.
DavidSimon (Chairman,andChiefExecutiveOfficer):
No.Pleasedo.Pleasedo.
RickSokolov(PresidentandChiefOperatingOfficer):
Butthereisalotgoingin,andtheyareacrosstheportfolioqualitywiseintermsofthesmallerproperties,themoreproductive,theslightlylessproductive,andtheyareallgettingbetter.Andifyoujustfollowourmomentum,wehad19addedin2015.Wearenowupto35in2016,anditisacrossthegamut.Ofrestaurants,NeimanMarcus,Bloomingdale's.Abrand-newSaksisopeningthisweekinHoustonGalleriainwhatisaspectacularstate-of-the-artstore.Andasweaddnewspace,thatenablesustoaccommodatethenewcutting-edgeretailersthatotherwisewewouldnotbeabletoaccommodate,andtheyarestilllookingtoexpandatproductiveproperties.Andsothatisongoing.Andthereisbasically,ifyoustepback,weareseeingdemandfrominternationalretailerscomeintothismarketfromnewretailconceptslikeSuitsupplyandALEXANDANIandTesla.Fromretailersopeningstoresthathavebeentalkedaboutalot.Brandextension--
DavidSimon (Chairman,andChiefExecutiveOfficer):
Restaurants.
RickSokolov(PresidentandChiefOperatingOfficer):
OfourexistingretailersthatWhiteBarnCandleisgrowingaggressively.Victoria'sSecretisgrowing4%thisyear.We'readdingrestaurants,asDavidsaid,throughouttheportfolio,andallofthisisjustmakingtheportfoliostrongerandstronger.
DavidSimon (Chairman,andChiefExecutiveOfficer):
And,again,weputinpage21toshowyouwhatthefruitsofoureffortsdo,andIbelievetheportfolioNOI,whichdoesn'tincludeourcorporateactivities,increased7.8%forthequarter.AsmyfavoriteguythatIliketoquote,AdamSandler,wouldsay,thatain'ttooshabby.Soweareconservative,butitisnotgettinginthewayofproducingtheresultswewanttoproduce.
PaulMorgan (Analyst-CanaccordGenuity):
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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Andthen,justontheteamsegment,ifwedogetarampupinclosings,Imean,obviously,closingsare--alotofthesechainshavebeengoingonforalotofyears.Butlet'ssayitrampsup.Alotofthechainsthemselvesdon'tseemtobeproducingsalesatthevolumeofonasquarefootbasisthatyourportfolioaverageis.Isthereaprettystrongpositivemark-to-marketonthatspace?Wouldweexpectspreadstobeconsistentifyougethundredsofclosingsthatcanbringinmoreproductiveretailers,oristhatnotthewaytolookatit?
RickSokolov(PresidentandChiefOperatingOfficer):
Well,Ithinkifyoulookatouractivitygeneratedlastyear,wherewehadWetFeelandCachetandBodyShopgoout,wehavebeenabletore-leaseaverysignificantamountofspaceatpositivebrandsandpositiveproductivitycontributionsbecausetherearemoreproductiveretailerscomingin.Soistheregoingtobedowntime?Certainly.Willthathaveanimpactonshort-termresults?Ofcourse.Butattheend,wecertainlydemonstratedanabilitytoreplacethoseretailersthatgooutwithbetterretailersand,frankly,thathasn'tchangedfordecades.Thatisthebusiness.
Operator :
TayoOkusanya,Jefferies.
T ayoOkusanya(Analyst-Jefferies):
Justtwoquestionsfromus.Firstofall,onthedevelopmentandtheredevelopmentsideofthebusiness,justnoticedacoupleofyieldchange.Theyieldsforthenewdevelopmentandthepremiumoutletswentdownalittlebit,andalsoexpectedyieldsonthemillsredevelopmentwentdownalittlebit.Isthatpurelyduetomix?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Yes.Yes.Sointheoutlets,weaddedourCanadiandeal,whichchangedthemix,andthentherewereacoupleofchangesinthemillsmix.Butnobudgetblows.Noincomeblows.Alljustmixchanges.
T ayoOkusanya(Analyst-Jefferies):
Okay.That'shelpful.Andthen,secondofall,inregardstoSears,Kmart,someannouncementsthisweekorlastweekthattheyareacceleratingclosures,justwonderingwhatyouthinktheimplicationofthatwouldbegoingforward,eitherforyourportfoliooralsoinregardstoyourJVwithSears?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Asfaraswe--no,andIthinkitisaprettysafestatement.Noneofthoseclosingsareinanyofourassets.Sothathasnoimpact,andIdon'tifitmakesSearsahealthierretailer,weareallforthat.And,really,itdoesn'timpactour(inaudible)JVorourrelationshipwithSears.Ithinkitis--wearestilldoingbusinessasusualthere.(multiplespeakers).
T ayoOkusanya(Analyst-Jefferies):
Soitdoesn't(multiplespeakers)abilityforyoutomakeacoupleofchangesinregardstoSearsmovingoutofsomeofthe(inaudible)spaceandyouareredevelopingandleasingthatspace?
DavidSimon (Chairman,andChiefExecutiveOfficer):
No,nothinghaschangedgiventhatrecentannouncement.WehavenoKmartinourportfolio.SoIwouldsayitisprettymuchbusinessasusualthere.Wearestill,obviously,spendingalotoftimegoingthroughourJVstoredevelopsomeofthoseboxes.Sothatisnot--nodifferentsenseofpaceornot,giventhe
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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recentSearsannouncement.
RickSokolov(PresidentandChiefOperatingOfficer):
AndIwouldjustpointout,thevastmajorityofthosestoresthatSearsannouncedasclosingwereKmart'sandfreestandingstores.Ibelievetherewasonlyoneortwomall-basedstoresinthatentirelist.Noneofwhichwereours.
Operator :
CarolKemple,HilliardLyons.
CarolKemple (Analyst-HilliardLyons):
Earlierinthecall,youallmentionedthatyouthinksomeofthebestopportunitiesformanyoftheonlineretailersareopeninginphysicalstores.Whatkindoffeedbackhaveyoureceivedfromtheonlineretailerswhohavealreadyopenedstoresatyourmalls?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Positive.Verypositive.Thecostofcustomeracquisition,wewouldencourageyoutoreadtheL2studythatweproduced.Thecostofcustomeracquisitionorpureonlineretaileratacertainlevel,iftheydon'thavephysicalstores,issohighthattheyallviewthephysicalstoresasawaytoreallyreducetheircustomeracquisitioncosts,extendtheirbranding,extendtheirreach.Andsofar,itseemstobeproducingwhattheyarelookingtogetoutofthat.So,sofar,sogoodthere.
CarolKemple (Analyst-HilliardLyons):
Areyoustartingtoseesomeofthemthatmaybeyousigned10leaseswithinthebeginninglookingtoenterintomoreofyourmalls,oraretheykindofcontentwiththespacetheyhaverightnow?
DavidSimon (Chairman,andChiefExecutiveOfficer):
No.Theyarealllookingtoexpand.
CarolKemple (Analyst-HilliardLyons):
Okay.Great.
Operator :
KiBinKim,SunTrust.
KiBinKim(Analyst-SunTrust):
Ijustwantedtoaskyouacoupleofquestionsonoccupancycost.Fornewleasesthatyouaresigning,whatdotheoccupancycostslooklike,andIthinkwhenIaskedthisquestionlasttime,yousaidaround14%to15%.Iwascuriousifthatneedleismovingcloserto15%or14%lately?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Itissoretailerspacespecific,butIthinktheimportantthingistolookatourbase--ouraveragebaserent.Itisstillunder10%--wellunder10%ofwhatthesalesare.Ouraveragesmeanalotbecausewehavethisvastportfolio.Youcanseetherolloverschedule.Thereisnoone--thereisjustnowayIcanreallycananswerthatquestion.Andsoitissospecificonlocation,mall,retailer,use,soonandsoforth.ButweareincreasingouraveragebaserentsandourspreadsareourspreadsandourtopNOIareour
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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topNOI.
KiBinKim(Analyst-SunTrust):
Okay.IguessIwasaskingiftherewereanymoregeneraltrendsyouwerenoticingifthingswerechangingatall.But,Iguessmysecondquestionis,howwillyoutreatTeslasalesinyourreportstatsiftheyaregoingtobeinthereatall?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,iftheyreportsales,theyarein.Iftheydon't,theyarenot.Imean,wehavethatpolicywitheveryretailer
KiBinKim(Analyst-SunTrust):
Sowiththat,doesthatmeanthattheirsaleswouldeventuallybeincluded?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Ijustsaid,iftheyreportsales,theyarein.Iftheydon't,theyarenot.Andjustaseveryretailerunder10,000feet,again,andIthinktheyreportinacouple.Ithinktheydon'treportinmost.Mostofthem.Soagain,giventhesizeofourportfolio,itisimmaterial.
KiBinKim(Analyst-SunTrust):
Okay.Thankyou.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Now,asyouknow,wehave100andhowmany--Iforget.Howmany--Tom,howmanyballsdowehave--100and--?
T omWard (VicePresidentofInvestorRelations):
107.
DavidSimon (Chairman,andChiefExecutiveOfficer):
107andhowmanyoutletsthatwe--seven.Sononeofthese--oneparticularretailerisgoingtochangeitallthatmuch.
Operator :
VincentChao,DeutscheBank.
VincentChao (Analyst-DeutscheBank):
Justacoupleofcleanupquestionshere.Intermsoftheotherincome,whichIknowwetalkedaboutinclusiveoftheresigains,ifwetakeoutthatimpact,itseemslikeitisabout$52millionorsoforthequarter,whichissimilartofourthquarter,butupquiteabityearoveryear.Justcuriousifthatisadecentrunrategoingforward--iftherewassomeother--thereisabunchofthingsinthatlineitem?Justwonderingifthereisotheronetime(multiplespeakers)?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Ijustthinkyou'regoingtohavetogetusedtothefactthatwearegoingtohaveupsanddownsinthatnumber.Overtheyear,itkindofbalancesout.Wegeneratedalotofadditionalincomefromour
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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portfolio,andwearehopingthatthatwillgrow.Iwouldsay,overall,thatnumberisaround$200million,butitcouldbehigherinonequarter,lowerinthenext.Itcouldbehigheroverthewholeyearandloweroveroneyear,anditisjustanumberthatisgoingtobevolatile.
Again,ourtotalrevenuebaseis,Steve,whenyouincludeourshare,theJVs$8billionofrevenue.Weareabigcompany.Soitisnot--thesethingsaregoingtogoinandoutalittlebit.Butthegoodnewsisitisincome,itisnotlosses.Okay?
VincentChao (Analyst-DeutscheBank):
Right.Okay.Andjust,maybenotaquestion(inaudible)ifImisseditfromearlier.Onthe5.1%same-storeNOIcompinthequarter,itwasquiteabitstrongerthanlastcoupleofquartersthatyoureported.Again,obviously,wejusttalkedabouttheinsandoutsonaquarterlybasis.Justcurious,though,iftherewasanythingsurprisinghereinthefirstquarterforyouguysrelativetoyourinitialoutlook(inaudible).
DavidSimon (Chairman,andChiefExecutiveOfficer):
Notreally.Wedon'tupdateourcompNOIquarteroverquarter.Wetoldyouwhatwethoughtwewoulddo.Wearealwaystryingtoachievebetterthanthat.Lastyear,wedidn't.Wecameinalittlebitunderwhatwehad--wantedtoseeincompNOI.Thatwasallrelatedtotheunanticipated--atleast,tothedegreeinouroveragerentduetothedecreaseintourismspending,yetweproducedourgoodearningsdespitethatheadwind.Allofthatisexplainedtomyshareholderletter,butwedon'tupdateit.Wearehopefultodobetterthanthatthanweguidedtoearlyintheyearandwewillsee.
VincentChao (Analyst-DeutscheBank):
Okay.Thanks.Andmaybejustonelastquestionontheanchoropenings.Ithinktherewasaboutfourbackstagesthatopenedthisquarter.Justcuriousifyoucouldprovidesomecoloronwhatyouwereseeingfromthatparticularconcept.
RickSokolov(PresidentandChiefOperatingOfficer):
Well,thosebackstagesthatopenedweredoneinexistingMacy'sstores,andifyoulookathowtheyareintegratedintothestore,theyarebasicallytakingoneforsideandoneparkingfieldandbrandingitMacy'sBackstage.AndIthinkitistooearlytosaywhatkindofsalesimpactithas,butitisanotherreasonforconsumerstocometothatstoreand,hopefully,itwillcontributethekindofpositivesalesimpactthattheyarelookingfor.ButthephysicalpresentationofitisbasicallyadedicatedentranceandadedicatedportionofonefloorofanexistingMacy'sstore.
Operator :
MichaelMueller,JPMorgan.
MichaelMueller (Analyst-JPMorgan):
Justhaveonequickoneleft.Whatwasthedollarvolumeofdispositionsthatyouannounced,includingresidential?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Thetotal--notthegain,thetotalamount--canwedoaquickadd,guys?$65million,somewhereinthat,includingtheoutletthatwesold.
Operator :
CompanyName:SimonPropertyGroupIncCompanyTicker:SPGSector:FinancialIndustry:RealEstate
EventDescription:Q12016EarningsCallMarketCapasofEventDate:63.64BPriceasofEventDate:202.71
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JeffSpector,BankofAmerica.
Jef f Spector (Analyst-BankofAmerica):
Iappreciatehearingsomeadditionalcomments.Ithelpedtoanswermyfirstquestionastohowthingshavechangedinthelastyear.Thinkingaboutit,David,wouldyouconsiderdisclosingthelatestoccupancycostofsalesfortheoutlets,justtodemonstratetheabilitytocontinuetopushrentsfurther,oratthispoint,you'rejustcombiningitwiththemalls?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,wehavealways--wehavecombinedthemforthelastseveralyears.Any--look,Ithinkallofthis--allofthesemetricsmanifestitselfintheircashflowandcompNOI,andwearenotasobsessedwithmetricsasmaybetheanalyticcommunity.Thatcouldbegoodorthatcouldbebad,butthatisjustthewaywelookatthings.
Wealsotakealonger-termviewoftherealestatethanwedoonaquarterbyquarterandevenayearbyyearview.SoIdon'tthinkthatdataisgoingtodoyouanygood,frankly.Itisnotsomethingwearelikeobsessedwith--oh,whatistheoccupancycostsgoingtobeinthisparticulardealwiththisparticulartenant.Itisnothowwerunthebusiness.Wearelookingatretailmixfortheprimarypurposethattheretailerdoeswellandtheconsumerlikesit.Andthen,ifthatworkstogether,thenhopefullyitwillcreatetheenvironmentthatwearetryingtodo,which,bytheway,wearenot--wearedecentat,goodat;wearenotgreatat.Wecanalwaysdobetter.
Soanothermetricisjust--itisjustnotwherewewantyoutothinkaboutus.Wewantyoutothinkaboutourcashflowgrowth,ourinvestmentinourassetsoverthelongterm,andsoon.ButallIcantellyouistheoutletbusinesscompNOIgrowthisdoingverywell,andwedon'tseeitchanginginthatevenwiththetourismslowdownthatwearecurrentlyexperiencing.Weare--ourportfolioNOIgrew7.8%withtoughtourismspendandaslowgrowtheconomy.Thatisprettygoodwork.Ican'tguaranteewearegoingtodoiteveryquarter,butIthinkthatisprettygoodwork.ThatiswhatIwouldlikeyoutofocuson.
Jef f Spector (Analyst-BankofAmerica):
Okay.Soundsgood.AndthenmylastquestionisjustonretailerCapExtenantallowance.Anychangethere?Aswethinkaboutwhether--howyouaresigningdealsorsomeofyourcompetitors?Isthatincreasingforsome,decreasing?Isitsimilartowhatwehaveseeninthepast?
RickSokolov(PresidentandChiefOperatingOfficer):
IfyoulookintheQ,ourallowancehasbeenflatyearoveryear,and,frankly,allthatallowanceisjustfornewtenants.Wehaveminimalnowallowanceforourrenewals.
Jef f Spector (Analyst-BankofAmerica):
Great.That'shelpful.
Operator :
ChristyMcElroy,Citibank.
MichaelBilerman (Analyst-Citibank):
David,Iamcurious,asyouthinkaboutalltheinvestmentsyouaremakinginthemallofthefuture,howdoyouthinkeffectivelythereturnonthatcapitalwillcome?Doyouthinkitisgoingtocomedirectfromtheconsumertoyou,ordoyouthinkitisgoingtocomeintheformofbettersales,betterproductivity,
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bettermarginsofyourtenantsand,therefore,higherrentsthatareabletobepaidtoyou?Andmaybejusttalkaboutwhereweareinyourviewabouthowclosewearetothismallofthefuturethatyouenvision?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,Ithinkwearestillintheveryearlystages.ImeanIwishweweremorealongthatcurve,butitisnoteasy.Iwouldsaytoyourfirst--butthereislotsofthingsweareexperimentingwith,andIcontinuetothinkthat,aswedothoseinvestments,thattheconsumerwillappreciatethemandwillleadtomoretrafficandmorevisitsandmorebrowsing,whichisveryimportant.
IwouldsayIdon'tnecessarilysee--Iseeitmoreascreatingabetterenvironment,whichwillleadtoallthebenefitsofthatasopposedtotheconsumerisgoingtopayusforit.Theconsumer,frankly,asweallknow,isgettingalotofstuffsubsidizedrightnowbecauseofwhatisgoingoninthebroaderworld.Delivery,returns,justtonameacouple.
SoIseeitmoreascreatinganenvironmentthatisgoingtodrivetrafficandleadtomoredemandforretailerswantingtobeinthoseplaceswheretrafficis.Andmoredemand,Ithink,relatesto,forus,hopefullywewillbeabletogeneratemorecashbecausesupplyanddemandisimportantineveryindustry.And,obviously,veryimportantintherealestateindustry.
SoIthinkitismorethat,butIwouldn'truleouttheconsumer.ButIthinkitismorecreatingtheappropriateenvironment.TogiveyouasimpleanswertodayandIsayweareearlydaysinthat,butwearehopeful,andwearehopefultocontinuetoimprovetheenvironment.
MichaelBilerman (Analyst-Citibank):
Iamcurioushowmuchbuyingyouhavefromtheretailerstoexperimentingandbringingmoreexperiencebasedthingstotheirstoresand,clearly,doingallthisstuffintermsofparkinganddirectontheconsumersidetogetthemtocometothemall.Butistheresomeretailersthatarebeingbetterpartnersintermsofjusttryingtodrivethatincreasedtraffic?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Yes.Ithinktheyareallveryfocusedonit.Ithinktherelationshiponthatfrontisexcellent.Wearegettingalotofcooperationbuy-in.It,obviously,dependsonthesophisticationoftheretailerand,frankly,theyareverybusy,too.
But,thegoodnewsiswhenwedescribetothemwhatwearetryingtoachieveandhowtheycanplayarolein,theyareallveryreceptive.Buttheyarealsoallverybusyaswell.
Soforus,itisprioritizingthebiggestbangfortheirbuck,makingiteasyaspossibleintermsofplugandplay,almost,touseatechnologyterminology.Wecandeliverthattotheretailer.Thatisaloteasier.Itgetsalittlegruesomewiththedetails,whichIwillspareyouandmeandeverybodyelseonthecalltogointothatlevel.ButIthinktheyarebeingexcellent--theyarebeingverycooperative,andweallwanttodrivetraffictothephysicalworld.Andweallseethebenefitofthat,andwewillcontinuetoexperimentandplugalonghere.
MichaelBilerman (Analyst-Citibank):
Great.AndthanksfortheNOIdisclosure.
Operator :
FlorisvanDijkum,Boenning.
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FlorisvanDijkum(Analyst-Boenning):
YourgrossinternationalNOIexposureis8%today.Whatisyournetexposure,andwouldyouconsiderexpandingyourinternationalNOIbasedonlowinterestratesthatofferinbothEuropeandinJapan?Andinparticular,whenyoulookatyourEuropeanoutletsplatform,doyouthinkyoucanexpandthatbyanother3millionsquarefeetoverthenextfiveyears?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Well,look,IthinkwedowanttoexpandourAsianpremiumoutletportfolio,butweonlywanttodoitwhenthereissupplyanddemandandwedon'twanttodoitbecauseoflowinterestrates.AndwefeelstronglyaboutourMcArthurGlenrelationshipaswell.Andthegoodnewsis,havingbeenbackandforthtoseetheMGEfolkstwiceinthelastfourorfiveweeks,theyhaveaverygoodpipe.
Sotheanswerthereis,yes,wewanttobuildouttheirpipeincontinentalEuropeandtheUK.Andwecertainlywantto--wecertainlygotahandfulofopportunitiesinAsiaaswell.And,listen,thelowinterestratecertainlymakesiteasierinasense,butitisalwayssupplyanddemand.Canwereachleasethebuilding?Canweleasethebuildingandatwhatrent?
Onyournextquestion,areyouaskingfromahedgingpointofview?Iwasn'treallysurewhatyoumeantbythegrossversusthenet.SomaybeifIcouldaskyouagainthat.
FlorisvanDijkum(Analyst-Boenning):
Sure.Itisbothonanassetandobviouslyyouarepartlyhedgedthroughlocaldebt,butalsoonanepicalcontributionintermsofyourinterestexpenseinlocalcurrencies.Whatisyourinterest--whatisyourcurrencyriskinthatincomeonboththeassetaswellastheincomeside?
DavidSimon (Chairman,andChiefExecutiveOfficer):
Wecertainlyhedged--weareinthehigh90s%intermsofourinvestment,andsothatishedged.But,given--youcanseetheNOIcontribution.Itisnot--itisrealdollarsonceconverted,obviously.Sothereisriskthere,andwearenotoverlyleveraged.Sowewillmakesomeofitontheinterestexpenseaswemarkthattodollarsonaweightedaveragequarterlybasis.Butwehavegot--theyareextremelyprofitable.Ourdebtserviceratiosareextremelyhigh.Sowewillneverbeabletohedgetheprofitabilityofthatandneverbeableto--wedon'twanttohedgeoverourinvestmentbecausethenyouwillhavethatrunthroughtheP&LeveryquarterandIdon'twanttodothat.WewillhavetheearningsrunthroughtheP&L,butIdon'twanttogooutsideofcurrencyhedgesthatwouldhavetobemark-to-marketifweareoverhedged.Andsowehavealwayshedgeduptoourinvestment,andIthinkweareinthe90s%some-oddpercentile.(multiplespeakers)
IhopeIansweredyourquestion.
FlorisvanDijkum(Analyst-Boenning):
Yes.Partly.TheotherquestionIhadwasregardingyour[Certage]JVandinparticularmaybe,Rick,youcantalkabout,doyouandyourpartnerhavesimilarviewsonthecapitalrequiredtoredevelopthoseboxes?
RickSokolov(PresidentandChiefOperatingOfficer):
Certainlywehadtheidenticalvisionastothepotentialforthoseboxes.Eachofusaregoingtohavetodealwiththefundingofthatwhenthetimecomesthroughtheirownsources,buttheyfullyrecognizethat,andwedonotperceivethatasanissue.
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MichaelBilerman (Analyst-Citibank):
Andwhendoyouexpectyouaregoingtostartyourfirstprojectthere?
RickSokolov(PresidentandChiefOperatingOfficer):
WeareworkingwithCertage,butalsoworkingwithSearsbecauseweneedtogodotheprettycomplicatedprocessofdownsizingthesestores,andthatisnotastraightforwardenterprise.
Operator :
Thatisallthetimethatwehaveforquestionsfortoday,soIwouldliketoturnthecallbackovertoDavidSimonforclosingremarks.
DavidSimon (Chairman,andChiefExecutiveOfficer):
Thankyouforyourquestionsandyourinterest.Wereallyappreciateit,andwelookforwardtotalkingtoyouinthefuture.
Operator :
Ladiesandgentlemen,thankyou,again,foryourparticipationintoday'sconferencecall.
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