Real Estate Investment Trusts Discuss Strategies at Bank of America Global Real Estate Conference

Federal Realty Investment Trust (FRT) Bank of America 2024 Global Real Estate Conference (Transcript)

Roundtable session with Federal Realty Investment Trust. I hope everyone had a good networking lunch, a little bit of coffee as we emerge for the afternoon sessions. To my right is Don Wood, CEO; and Dan Gee, CFO. And then Leah, IR. Leah is back from maternity leave. So good to see you. Thanks for coming. And it's Don's birthday today, so happy birthday. I got to warn people. We got to be nice today. So again, thanks for joining our afternoon session. Kicking off here with Federal Realty. For those in the audience that maybe don't know the company as well. Don is going to provide some opening remarks on the company where it stands today, and then we want to make this as interactive as possible. So if you have any questions, just raise your hands and we'll get things started. So I'll pass it on to Don. Don Wood Thanks, Jeff. And really thank you guys for taking time this afternoon to be here. When I look around the audience and again, I don't know who's on the webcast, forgive me for going back and giving a little bit of history of the company for those of you who do know us well. But I don't think everybody does. So Federal is a shopping center REIT. And we've been around -- one of the oldest REITs in the country, been around since 1962. Pretty interesting in that period of time, which is now, whatever it is, 62 years. So only been three CEOs of this company. And I'm the third. I've been at the company since '98. I've been CEO since 2002. And the reason that, to me, it is important is because it does say a lot about the stability of this place. We're a high quality company. In fact, I would argue we're the highest quality open air shopping center company out there with respect to not only population around our centers but income around our centers. We are largely on the coasts from Boston to Washington DC, also in Florida, West Coast of Northern California, Southern California, Arizona. It's a company that was really put together to accomplish one thing. We sat down and said, we know this is a cyclical business. We know that there are highs and lows in the shopping center business. How do you build a growing stream of cash flow that finds its way through the cycles, good times, bad times, whatever they are. And I think if we all came together and sat back in the early 60s and said, how do you put together a portfolio and grow a portfolio that did that, we probably agree on a few things. One, we want to be in places where people have money to spend, people have money to spend when times are good, people have money to spend when times are not good. We want to be in places with lots of those people from a demographic perspective and importantly, barriers to entry, because it's really, really hard to get rents to go up to the extent there's a product that looks very similar to yours, that's right next door. And so those three facets led us to put together what we think is a really great high quality portfolio. The other thing is you want to diversify that income stream. And certainly, we have our share of grocery anchors, certainly we have our share of box anchors. We also have our share of mixed use properties and that means a residential income stream that makes up 9% of the portfolio. And office stream, the bad word of office but different office that is part of only our mixed use properties, which makes up 9% or so of our income stream. So you're looking at a way for cash flow to be generated by the company that comes from a really varied type of tenants. Our largest tenant makes up less than 3% of our income stream. The other thing you'd probably want to do is recognize that in order to create value in real estate or keep cash flow growing through good times and bad, you need as many arrows in your quiver as you possibly can. So we do have a strong -- not only strong internal growth through the properties that we have, but we also have the ability to use a very strong balance sheet to acquire. We also have a very strong balance sheet to develop. And when it comes to develop, what we primarily do is add on to our existing shopping centers for whatever the highest and best use of that real estate is. What it's turned out to be a lot of our residential properties or assets that for people living in those residences they appreciate having the amenities of the shopping center adjacent to them. So that's another arrow that's in the quiver. And when you put all those things together, what you found is a company that throughout its 60 year history has been able, remarkably, to increase its dividend to shareholders every single year since 1967. Every single year since 1967. And if you think about what's happened in this country and you know over that period of time, whether you're talking about 20% interest rates or whether you're talking about 9/11 or whether you're talking about wars and certainly many economic cycles of inflation and recession, it's pretty, it's pretty remarkable. There's one time that knocked us off our game. One time. It was COVID. And the reason COVID knocked us off our game more than other shopping center companies, still not bad, but more than other shopping center companies is because our markets on the coasts largely closed down and they closed down more than other markets. And so as a result that growing stream of income was interrupted by that and only that over that period of time. It's pretty remarkable. It's also been pretty remarkable that since that time we've recovered extremely strong. We're well above where we were in 2019 and look at a very, very bright future. And I'm sorry, Jeff. You know me. I could talk on forever. So just stop me when you want. I got a few more things to say if I keep going, though, if you don't mind. When you look at our business today, the open air shopping center business today, it is a period which is different than much of the last -- much of that history and that it's really the first time that in open air shopping centers, I can honestly say demand exceeds supply. And for most of that time, some of you gosh, certainly, Steward and Steward certainly know, as investors that I have preached that supply exceeded demand, we built like crazy through the 90s. We built like crazy in the 2000s. And so we were specifically focused on making sure that our product was differentiated, that's -- that it was better, that it was different, that we had to be a choice for a retailer to come to us, because it was not the same thing. And as a result of the lack of development, really, since the great financial crisis, in the country, there has been very little retail supply added. And when you think about that through the teens and into COVID and now coming out of COVID, it's really been a benefit to the entire industry. So anywhere that you invested in open air shopping centers post-COVID, it's worked out pretty darn well. And it's worked out pretty darn well because a rising tide does lift all boats, and I think that's great. And that demand supply characteristic really won't change for the next -- for the foreseeable future. It takes time to make the numbers work, to plan, to entitle, to be able to build new product. There's some of it starting in a couple of places, but very, very small. So that supply demand dynamic, you should expect to continue. Now what probably won't continue is an economy that was so propped up post-COVID. And lots of money, $5.5 trillion into the economy has a lot to do with consumers being able to consume at their leisure. And obviously, that's changing. So the notion of, do you expect consumers to continue to consume at the level that they did in '21, '22, into 2023? No, I don't. I expect a more normalized environment in the country overall. Not a bad environment, just not compared to an overstimulated environment of the past 24, 36 months. And so to me, it's pretty likely that it'll become more important, like it did for most of those 60 years, for the high quality stuff, the places where consumers have the means to consume are located with respect to the real estate that you own. So I'm looking for -- I'm looking at -- we've been sector leading growth for the past two years. I would hope that to be able to continue into the foreseeable future. So I think quality matters. And when you look at tenancy that is -- that could -- has not seen a lot of bad debt, has not seen a lot of failures, you have got Bed, Bath & Beyond. You've got some of the retailers that are hitting, that affect lower, income consumers, the Big Lots of the worlds, the JOANNs, if you will, of the worlds. Those notwithstanding, the credit of many of those big boxes is pretty darn strong and should be pretty darn strong for the next few years. Question is, can you make money around those tenants with the small shop? And the places that make that shopping center feel different than every other shopping center that you know in America. I'm going to stop right there because I'm exhausted, and let you ask your question. All right. That was great. Thanks, Don. I guess on the subject of quality and demographics, it's something that we've been emphasizing. But the last couple of years, year-to-date, it hasn't mattered as much or it's not a big part of the conversation, demographics. So I guess first, I mean -- and maybe tie into the -- we had a consumer panel this morning with the BofA Institute. And through our credit bank data, we have seen some slowing but resiliency across the Board and then in particular, lower income consumers starting to [weaken]. So are you -- when you talk to your peers or retailers, I mean, where do you think we are in terms of the state of the consumer, is it just normalizing? Or from your experience, this is typically the start of something that could create some issues or are you hearing any more issues that we should be aware of? Don Wood Yes, there's a couple of things to talk about in there. One is -- and what I'm about to say is obvious, but it's important to keep this in your mind. The landlord, the real estate, is not the retailer. There's an inherent cushion between a retailer's performance and whether they're able to pay the rent in the real estate that they own and what can happen with that. And with respect to that, I can sit here, wherever we are, in September of 2024, and say, I have seen very little, if any, reductions in the appetite of retailers to continue to sign leases and to grow. I do think what's important in here, and this is something that's very hard for an investor to get his or her arms around, is the quality of the operator. And this will be part of the normalization, which I think is what's happening, Jeff, that's important here. If you think, think about most shopping centers in the United States of America. Wherever you live, wherever you've traveled, wherever you go, you've certainly seen places where it doesn't matter, other than the TJX box or the Ross box or the Dick's box, whatever that's in the shopping center or the grocer, whoever it is. When you look at the small shop, there's a propensity to lease to whoever will pay the rent, and that to me is short sighted. Because if you are trying to build a stream of cash flows that gets through highs and lows, what you really need are the best operators in each category. And you've all seen it in your towns and the way you've grown it. Think about any restaurant that's part of a shopping center in your town. When things are great, the mediocre person, they can make it. They do just fine along the way, it's mediocre but you got money and there's stuff to do. When things get tighter and the consumer spending, I don't know, 10% less, your sales are down 10%, 5%, something like that, your margins are squeezed, your costs are up, it gets tougher. The difference between being able to pay your rent and continue to thrive in your business is whether you're a good operator or not, and there is not enough talk about that. And I say that because what we try to do throughout the portfolio, and albeit it's a higher quality portfolio, so we have a better chance of doing it, is to find the best operators in each category. When you can do that and you know you've got tenants that are not worried about making it through the cycle, they are -- they know they are going to make it. They're operating differently. They're operating smarter. They're using technology. They're the people that can get them the best employees, because they're known in the industry as being the best operators. All those kind of things that are qualitative, in many respects, are why what happens to us in downturns normally is we are much less impacted by the downturn. And it goes back to where I started from. That's kind of the way I see the next couple of years. A good a good economy. I do think we'll figure out how to how to get to a soft landing. I'm hopeful. But I'm not an economist. So if we don't, I want to make sure that it's not what we're going to do now. If you're waiting till now to decide how you're going to -- what you're going to do, it's too late. You had to build up the company with the right cash flow stream, with the right tenants, with the right balance sheet, historically, to get to where we are today. That's why I'm hopeful on a relative basis that you'll start to see some differentiation for -- in a prior period that that didn't matter as much, because it was all -- because the rising tide was lifting all boats. Jeffrey Spector Does it take a recession to see these differences? Don Wood No. It doesn't. This is not a political comment. This is just fact. Federal Realty made more money for its owners during the Obama administration than anybody else by far. And you know why? Because the economy was so, so. Because two things, interest rates were low and that's important, but not that important. Interest rates were stable, and that's important. So whether they're stable at 2.5% or 4.5% or 5.5%, well, that's not a number that you can't make any money with, that's important. But the thing that's most important is that the economy is growing slowly. Economy growing slowly, real estate investment trusts like this look great. Economy growing too fast, you got other places to put your money. There's other opportunities. Economy going poorly, nobody's interested in anything. So I'm looking for what I think we're going to see over the next few years and that is a slow growing more normalized economy, which I think should be good in a space where demand exceeds supply. Jeffrey Spector And then in terms of the portfolio, you talked about 9% resi and I believe you said you're also at 9% office? How has that evolved? And how should investors think about that over the next five or 10 years? Don Wood For those of you who don't know us well, we have affectionately known as the big four within federal and that is $4 billion plus of four assets that are large, mixed use, laboratories for us, Santana Row and San Jose, California, our flagship. Pike & Rose in North Bethesda, Maryland. Bethesda Row, Bethesda, Maryland. Assembly Row in, Summerville, Massachusetts. In each of our major markets, we've got a big one. And the -- what we get out of the big one is the economics of the residential, the economics of the office, the economics of the retail. And the integration of those in the big one, what people don't get is what we've learned by doing those billion dollar projects basically trickles through to our other 102 assets. We've learned tons about construction, we've learned tons about place making and how to make a place feel special. We've created relationships with tenants that aren't in usual shopping centers, that are in our shopping centers. It's found its way all the way through the company. And you'll notice a difference if you go out and look at our assets than at the typical shopping center. And so the notion of having those mixed use properties, the only reason we have them is because we had shopping centers in places that intensified over the years, over those 60 years, such that we were able to make economics worth by going up. Going up, not much of a shopping center demand on the fifth floor of anything. And so we created communities. The residential at those properties has grown at 3.5% CAGR for 20 years in those properties. It's been fantastic. Because -- and you all know it, you want the convenience of the amenitized base with the restaurants, with the shops, with the services to effectively go along with you. And in any of those markets, those four markets that I'm talking about, and we also have some in Miami too, at CocoWalk, something that we did just in the last couple of years, that those rents are premium. The same applies to the office at those places. And God, the o word, how could, oh my God, how could we have a conversation with the o word and it's a bad thing here. It's not a bad thing in these places, particularly when the buildings are new or being built. Now, that's the only places where we do have office. And that's the place where we've done, heck, 1.2 billion square feet -- million square feet or billion. 1.2 million square feet leases over the last four years all at premium rents. It's good stuff. Now when you put that together and you look forward about that, we acquire -- we don't acquire mixed use, usually we tend to acquire great pieces of great shopping centers or great potential shopping centers with maybe the ability to put mixed use on them, which I love putting residential on properties that we already own. But you should expect that ratio, 9 and 9, 10 and 10, whatever that to be roughly 80 to stay. This is an 80% -- this 80% of this income stream is retail all the way through. And I would argue that the residential one and office is so tied to the retail at those places that we're really -- we certainly think of ourselves as a retail company through and through and through. Jeffrey Spector And on that residential side. When we saw you in March, I know you said you want to be opportunistic and take advantage of entitled land, wherever it's appropriate to add resi, you need that cost of capital. Where are you today in terms of your mindset on adding more residential to your properties? Don Wood Yes, it's an important thing to understand. So during any cycle, during any time, there are times when math works better to buy and when math works better to build, and it is clearly heretofore it makes much more sense to buy than to build. Construction costs are high, this, that, and cost of money high, higher. All of those things. What we use periods like that for, exactly like we did in the great financial crisis, is to go through the process of getting ready to be able to build when the market changes. As investors and you look and you see, there's development. When you think of development, you think of construction generally, building something. The reality is that's the very last phase of development. The permission to be able to do what you want to do, the entitlement phase, takes years and is upfront before that. The designing of what it is and the pricing of what it is that you're going to do, it takes a year before something more than that before that. So you take your down periods and you work like that like crazy. That's what we've been doing with respect -- over the last couple of years with respect to entitling and designing largely residential adds, apartment adds to our best shopping centers. We've got an opportunity, it looks like to do 12 of them. Do I think we're going to get to all 12 of them? No. Do I think the math will work on all 12 of them? No. But we got the first one. And it's under construction in Bala Cynwyd, Pennsylvania, which is on the main line just outside of Philadelphia at Bala Cynwyd Shopping Center, a very good shopping center that we did, where we did an experimental first 90 units a few years back and it killed. So now we're adding a couple of 100. And we've gotten that with more retail on the ground floor to incorporate this piece of land as a mixed use project. The going in yield would be a seven unlevered on residential, which is really -- when you can count on 3% CAGR each year from that time, because you get to those leases, it's not like you're putting this thing away, you're getting to that year-after-year. From my perspective makes a ton of sense from a capital allocation perspective. No land costs because you own that land effectively there, which is a huge plus. And often in some of these places, parking is already there partially there, which is a huge -- another huge component of costs that is advantageous. We're real close on adding a smaller project in Hoboken on a piece of land that -- on a retail piece of land that that we own that should come up next. I think you should expect to see more of that over the next few years as the economy changes. And you know this gets down to kind of where we are today. Most retail real estate portfolios are fully occupied. And once you get to 95% or 96%, you got -- because now you're fully occupied generally. We got a little bit more to go than now. We got another 100 basis points or potentially more in ours because we were hit harder by COVID. So we're behind a little bit in that. So there's a bit more of a tail that way. But if you say, well, okay, once you're fully leased, how do you grow? And I am afraid that the investment community, in general, particularly the generalists who don't know this business well, are being led to think that these properties can grow much faster than they actually can. Because when you think about a shopping center, it's made up of anchor boxes, which almost universally or universally have a CAGR in their leases of about 1% a year. 1%, maybe 1.2% or about 1.4%, because the way those leases work. So you have to make your money in the shop, small shop, which is very, very important to have distinguishable and not just anybody in the shop. It gets down to the operators, it gets down to the sales, gets down to the place making all that. When you put all that together, a good same store growth portfolio, a really good one, like, I think ours is, should grow about 3.5% a year at the POI level, at the property operating income and I think most grow at much less than that. So the point is, well, all right, in a more mature market, in a more normalized market, what other arrows do you have back here to be able to create that growth? And that's why I talk about that residential development, because the more you can think like a real estate person and create value and add cash flow to that income stream through more sources, the better your overall growth is going to be. And so I'd like to have as many arrows in the quiver as possible. We've been doing that for 25 years. Jeffrey Spector And on the residential development, it'll be on balance sheet? Don Wood Yes, and that's a big point. Whatever you do, it's got to matter. We're a $10 billion equity cap company. The notion of doing all the work to entitle, to design, to get something ready on your property with your land cost, to be able to go do it and have it be a $80 million, $100 million project, something like that and joint venturing that and investing 20 or 30, doesn't move -- it wouldn't move the needle for us enough. So we would prefer, and we've developed the expertise over 25 years, not unimportantly there, we would prefer to put that capital out so that it translates to the bottom line. At the end of the day, it's got to come through the bottom line. Jeffrey Spector I just want to make sure if there's any questions from the group. If not... Don Wood You're doing a lot of clicking. Are you right in your overboard right now? You know there's AI now? Jeffrey Spector True. I wish they let us use that app, I thought about that. Please... Unidentified Analyst Don, you talked about the big four. You talked about developing, especially apartments. So from a funding standpoint, how do you [Technical Difficulty]. Don Wood Yes, I know where you want me to be on that one, but let me talk about this for a second. So first of all, our job, I think, is to not surprise you. And so the notion of balance and capitalizing your company with balance, capitalizing your company with consistency, making sure that all potential capital streams are available to you, is such a key part of what it is that we do, which is why you'll see us issue equity, but we issue equity $100 million a year, $150 million a year at a time through the ATM program. We've been doing that since 2011 or 2012, something like that, each year. I don't think there's an equity investor out there that minds us raising $150 million. If we're putting it to work above that cost of capital there, which I think we've done a good job of doing it. We absolutely recycle assets and sell $100 million, $200 million, $300 million, depending on the marketplace and the opportunistic possibilities we have there in each year about $120 million. So this year so far along the way. And then the third thing, and I'm getting at your question now, the third way to do it, it's all part of what you own, form of a joint venture, et cetera. I've said in the past that we would look to in the future joint venturing those big four assets or a potential part of those big four assets. That is absolutely on the table. Now what has what has really pushed me to say that is over the past few years, and to some extent still, the public markets are not paying for those assets. Those assets, those are low cap rate assets, man. They're the best in the country. And if any of you want to really dig into and see and understand a Santana Row or an Assembly Row or one of the big four, I'd be happy to show you. And you will see what I mean. I mean, these are better -- these are really good stable income streams with future development opportunities embedded in them. When you look at that stuff, $117 stock price doesn't catch it -- doesn't cut it. Frankly, it is $100. When it was $195, I was really saying, man, we got to figure out how to exploit that. I mean, we got to get paid for that. If I had my way, the stock price would reflect it. We would not have joint ventures. I personally -- I don't want another -- I don't want another partner and they're diluting our growth assets there. When -- would I do it, when are you going to pay me for it? So there's a number. There's a place. There's a time that, that can happen. It's not today. Don't need it today with the other measures that we talked about but it's something that's on the screen. Effectively, if you look -- if you really think about it, it's a competitive advantage that nobody else has. There is a big chunk of this company that is undervalued that we can tap at some point in the future, that can't be a bad thing. Jeffrey Spector When we saw you in March at our retail executive event in New York City, I think in all the years I've known you, you were the most excited on acquisition opportunities. Where do you stand today on, I guess, the opportunity set? Don Wood Let's talk about how it works, right? There isn't one of you here that wants to sell anything you own for less than you think it's worth. Not one. I don't care if you're talking about a car, you're talking about a stock or you're talking about whatever, unless you have to. And in order for you to be comfortable at a value that you think what it is that you own is worth, you've got to be comfortable in real estate with where your cost of money is going to be. And obviously, for the past couple of years, nobody's been comfortable with where interest rates are going, with what the story was going to be. That changed a bit early this year. And that gave me irrational exuberance, if you will. Because what was happening was the difference -- it's always the difference between bid and ask. But what I'm willing to pay and what you need to deliver something, and that historically had been very, very wide really through COVID, and wasn't going to happen. As that came down early in this year, we saw a window. And we jumped through that window, in two ways, pinhole, in Northern California. And to me, one of the best things we ever did was Virginia Gateway, in Gainesville, Virginia. So nearly $300 million of assets. Virginia Gateway, we're going to do a 7.2% yield cash-on-cash to start there. If they had waited four to six months to today, that'd be 75 basis points, 100 basis points inside that because there's far more clarity on what's going on with interest rates. Now that exuberance let us get those done. Do I wish we did more? Sure, we tried. Not a lot that was out there. Now the question is, will we be able to, because once again, a seller is going to have an expectation of falling interest rates, their expectation for what they're going to get paid is going to go way up or going to go up. Question is, our stock is higher, our cost of capital is lower, we can pay more. If the bid ask before was here and we made it work, is the bid ask here and can we make it work? I'm still encouraged that we can. In fact, I'm going to leave here. I'm going to get on a conference call about a specific asset that we're looking at right now to be able to do that. So I'll tell you more at the 3:00, if you'll wait till then, in terms of what's happening. I am still optimistic about it. But I do realize, man, that you're not -- we're not going to put out capital that is not accretive to start value producing from an IRR perspective over time. And we've been able to find a couple of those. I'm hopeful that we can find a couple more to go and that will always be a key part of what it is that we're doing. Jeffrey Spector Great. That went by fast. We're already out of time. We do have three rapid fire -- rapid answer... Don Wood I didn't think we're doing rapid [Multiple Speakers] hear what happened... Unidentified Analyst Three quick ones. First, do you expect real estate transactions to increase once the Fed starts to cut? Yes or no? Don Wood I don't know. I don't. It's the bid ask thing. Do I expect more properties to be available? Yes, I do. Do I expect there to be able to get to -- cover the ask with a bid there? I must say, yes. Just change it to yes. It's rapid fire. I should just say something... Unidentified Analyst Then it's yes. When do you expect them to pick up fourth quarter this year, first half next year... Don Wood Now you see, he suckered me into that question. You see what just happened? Fourth quarter this year. Unidentified Analyst Okay. Second, how would you characterize demand for space today? A, improving, B, steady, or C, weakening? Okay. And finally, how would you characterize your AI spending plans over the next year? Higher, flat or lower? Don Wood Boy, that has such an interesting connotation to me. That's a rapid fire? Boy listen, I could really talk about that for a while. But anyway... Jeffrey Spector All right. Thank you very much to the Federal Realty team. Appreciate that.

Simon Property Group, Inc. (SPG) Bank of America Global Real Estate Conference - (Transcript)

Brian McDade - Executive Vice President and Chief Financial Officer Conference Call Participants Jeffrey Spector - Bank of America Securities Andrew Reale - Bank of America Securities Jeffrey Spector Joining our first round table fireside chat session for our conference, we have three tracks going. This round table is Simon Property Group. And with us today is Brian McDade, CFO. We always want to make this as interactive as possible, and it is a broad group of investors. So for those that know Simon really well, we will try to hit on some of those questions, but I do see some newer faces to the room that maybe Simon is a bit newer story to them. So we always want to cater to everyone. Brian, could you start off maybe then quickly just remind folks exactly today Simon Property Group, what do you own and what's maybe key strategy positioning? Brian McDade Sure. Thanks, Jeff, and thank you, Andrew, for the time this morning. Great to be here with all of you today. Simon Property Group, S&P 100 member, been a public company now for almost 31 years. We are the world's largest owner of retail real estate, about 90% of our business is domestic in the US or North America with the balance globally. We operate across multiple real estate segments and types. So all in the retail space, full price all the way out to the value segment, which is our outlet and our mills business. The company operates in 37 states in the US, generates approximately $4.5 billion of funds from operation annually. Ultimately pays dividend of about $8 per share, which is a yield today about 6%. So business is an incredibly strong place. We've seen a resurgence from COVID. The company continues to grow in all of its end markets. The leasing environment continues to be incredibly strong for our asset in real estate type across all of our platforms. And the momentum, we reported results about 30 days ago now $2.90 of FFO for the quarter. Interestingly, for the quarter, the second quarter, we produced our highest amount of net operating income in the company's history. So the momentum of our business continues. We produced about 4.5% growth in our NOI on a year-to-date basis from our domestic business, it's about 4.2% as we factor in our international business. So the business is on solid footing. We continue to see opportunities to deploy capital for growth. Importantly, we opened up a new outlet center in Tulsa, Oklahoma in the middle of August at a 100% leased. It is a brand new center with our latest and greatest technology and offerings. The retail community really embraced the assets. There were 10 brand new to market retailers that opened up in the center, new to Oklahoma. So really exciting times there. We are opening up an expansion of our incredibly lucrative Busan outlet in South Korea here in a couple of weeks and we are building in Jakarta, Indonesia and we'll open up an outlet there in the spring. And so Simon is uniquely positioned as the one of the only companies in the world that can build in Tulsa, Oklahoma and Jakarta, Indonesia at the same time. I mean more importantly, the company's balance sheet is one of our secret weapons and it's not really a secret, but we are an incredibly financially disciplined organization. Net debt to EBITDA is about 5.2 times. The balance sheet is well poised to continue to support our growth going forward. The company generates about $1.5 billion of free cash flow after paying its dividend annually that's available for reinvestment in its properties, which is a rather unique situation relative to other REITs in the world. Most REITs don't produce the nearly the amount of free cash flow that Simon produces and available for reinvestment. So that is the kind of synopsis, but happy to open up for questions for Jeff, Andrew or anybody in the audience that may have them. Thank you, Brian. And again, if you have a question, feel free to chime in. I guess just to finish off on the balance sheet, you did sell your stake, I think fully out of authentic brands. Generating about over $1 billion in cash. Is that still sitting on the balance sheet? And what's the goal you know our plan for use of that? Brian McDade Sure. We did, we generated $1.5 billion of cash off the sale of that investment. Really pleased with it. It was a great return and really pleased with the outcome. The cash that we generated sat on the balance sheet and is actually going out the door to further delever the company, here we have $1.9 billion of unsecured maturities that mature at the end of September and the beginning of October, the cash will be used to pay down that debt, further improving the balance sheet and creating capacity for incremental opportunities in the future. Will be fully paid down. Okay, great. And then you touched on the geographic diversity and then the different platforms of course have exposure to high income middle income earners and maybe including some low income earners, but a small percent. What are you -- given all the questions on the consumer, I was just saying, we did a consumer panel, what are you seeing across the platform in the United States? Are you seeing some differences and maybe if you could just talk about United States versus other parts of the world? Brian McDade Sure. You know we were one of the first out there to talk about the low income consumer and the pressures on that consumer, that had to be 24 to almost 36 months ago. So we were out ahead of the pack to some degree talking about that. That lower income consumer has been in a recession for a while now. They are still shopping, but it's for specific things. So back-to-school, birthdays, holidays, experiences et cetera. Panning to the other end of the spectrum here is the upper income consumer who traditionally spends more relative to where asset values are and we've seen asset inflation across the globe, quite honestly, whether it be real estate, whether it be art, whether it be stocks and bonds, whether it be the big seven. So that consumer continues to be resilient middle income consumer here the middle of America, you've heard Walmart talk about this, their new customer is the consumer making more than $100,000 a year. And we're seeing some of that in our own portfolio and that is the benefit of the diversity of our portfolio. You're starting to see some gravitation or we've seen a bit of outperformance in our outlet in our mills business versus our full price business, which is that trade down effect whereas people are looking for value, they're looking for their dollar to go a longer way. And so we are the beneficiary of that as you see gravitation between the two different platforms. So you are seeing it, but people are still out shopping. I think you've seen some of the aggregate data. I think Bank of America does a great job of putting out aggregate information out of the institute. Traffic continues to be strong. You saw it July was a weaker month overall, but you saw increases in traffic and in sales in August and leading into September. So I think the back-to-school holiday season and that's the unique part about the United States, back-to-school starts in Indiana in early August and in the Northeast after September. So that back-to-school season and that shopping season kind of spans a longer period of time. And I think what you saw in August and September is representative of really probably what's going on in the more macro economy. Jeffrey Spector We have seen luxury sales normalize, our luxury analyst is a bit more cautious. So how should investors think about luxury spending? And I believe the institute may have commented or I saw an article that middle income earner who is maybe stretching for that full price brand is pulled back. I guess what are you seeing and then tie that into leasing, right, because the biggest concern everyone always has is, okay, what does this mean in terms of leasing and store openings because you did say that leasing remains robust. Brian McDade Leasing absolutely remains robust. And as you think about that cohort, the luxury cohort, they don't think quarter-to-quarter those retailers, they think decades. And the real estate that they control is incredibly important to their business. I mean, think about Fifth Ave here and what's happened in the last six months with LVMH and Kering fighting over corners on Fifth Ave and buying those buildings. It is incredibly important to their business success, the locations of their real-estate, number one. Number two, yes, you've seen a normalization in sales, but I think what had happened is with COVID and with stimulus, the luxury cohort probably benefited disproportionately to the positive because of that influx of stimulus into the US economy and now we're back to a more normalized level of spend. And the shopper, the cohort of shopper of the luxury is probably consistent with its past customer versus what they were seeing during COVID, number one. Number two, the business model of that luxury retailer is evolving and changing in the sense of historically big exposure to the department stores, wholesale store and store concepts. The luxury retailers are breaking those bonds and they really want to be in line space nameplate with their nameplate above it in creating a direct to consumer business, which is naturally beneficial to Simon across our portfolio. So we continue to see a gravitation out of department stores into our assets in line spaces. The other added benefit of our diversity of our portfolio is as retailers continue to expand and grow in markets and increase their inventory in SKUs. It does create the overhang at the end of selling seasons that they need a clearance channel. And so we are the beneficiary of those stores that they're opening up in the outlet portfolio as well. And so as that luxury demand continues to grow, we're meeting it both on the full price and on the value side in our outlet portfolio. So it's really continuing. The demand for this from that cohort of tenant continues and they don't again they don't think in quarters, they think in years. And so they are actually securing locations in our portfolio in '26 and '27 because the specific location is so important to their business. Jeffrey Spector And I know we ask every couple of months including at the May ICSC just, are you seeing any pullback in store openings at this point? I mean, naturally, we have higher lower vacancy levels. So store openings will slow because again there's less space available. But you know in terms of your, let's say, weekly or daily leasing discussions as a team, are you seeing any evidence of retailers pull back on closings, I guess, let's answer that first. Brian McDade No, there's been no change in posture, you know in the scarcity value of high quality real estate and its availability is certainly the reason for that. We are now and you heard us talk a little bit about this on our second quarter call, we're now in a place from a supply demand perspective that the occupancy levels are as high as such, allows us to swap out lower producing retailers with better retailers. And so that is a phenomenon that we've really seen kind of accelerate in the last 12 months to 24 months where there is such a demand for space that we're actually able to make the landlord decision not to renew leases and to replace them with better performing retailers over time. And that's really driving the underlying core of the business. Jeffrey Spector I assume bringing in maybe then the latest brands that you're focused on or? Yeah, the merchandising mix is continuing to evolve to the respective kind of desires of the marketplace that we're operating in. And so there are, we operate in obviously a variety of different economies and catchment areas. And so we really kind of match our retailer mix with that community or that catchment area as best as we can. Jeffrey Spector And then in terms of that leasing strength on the last call, you talked about occupancy levels and potentially reaching 96%, I'm sure by possibly year end. I guess, how should investors think about occupancy across the three platforms. And if you could remind us what was the record occupancy in the portfolio and you know will you exceed that? Brian McDade So the record was 96.8% and so we are on path to hopefully achieve that at some point, we'll see. You know, you heard us talk about 300 basis points of signed, but not opened leases and ultimately, you also heard me talk about the fact that we're optimizing mix here. And so ultimately, some of that 300 basis points, it's not all incremental occupancy to the existing because we're going to replace tenants with that. So roughly a good proportion of that 300 will be new occupancy, but some of it will be replacing existing tenants at better economics. Unidentified Analyst Brian, you're talking about replacing tenants at better economics. Where is that spread between kind of rents that were you know for new leases kind of start with [indiscernible] 60s that were expired? Brian McDade You still have probably a $10 positive spread to that. You have leases expiring in the low 50s and you have new leases being signed in the low 60s. So there's about a $10 positive spread give or take generically speaking here, Sam, every situation is different. But I think if you look at the population, that's kind of what you should assume is that we're -- the leases that we're rolling over or exiting are in the 50s, low 50s and the new leases are in the low 60s. Unidentified Analyst And just a quick follow-up that $10 spread, do you think that kind of that's the right spread as we look out over the next 12 months to 24 months when we look at rates that are expired [indiscernible] or is it just very specific to the mix this year? Brian McDade Mix always matters, no question, especially on the signing side. So if you're signing a lot of luxury leases at high rents, then you're going to drive that higher. But generally speaking, in a portfolio of our size the denominator matters. And so I think it's a pretty good run rate for kind of the overall business. There are going to be anomalies no doubt, Sam, but ultimately, I think that's a good barometer of where kind of pricing is relative to the existing. Correct. And again we're also signing leases for longer duration that have embedded 3% escalators on our base rent. So we're starting at 60, but escalating from there. That is you know we're signing five, seven and ten year leases and the retailers are looking for that type of duration because they really want to secure that location in our assets. Unidentified Analyst Can I ask like what percent of NOI comes from percentage rents and where are the trends there? Brian McDade It's about 5%. And look, on a flat, even in a flat sales environment, we're still seeing positive contribution from overage rent because you got to -- you have to -- as you heard me talk about, we're seeing a gravitational change between our shift between our full price business and our outlet business. So while the full price might be coming down from an overage perspective, the outlets and the mills are picking up and offsetting it. So ultimately, we're just seeing the overage rent manifest itself in a different platform, but overall, it's consistent with that 4% to 5% level. Flat environment. I think that's what we should assume for now. Yes. Unidentified Analyst Am I right in the guidance, did you guys talk about expect a flat percentage rate year-over-year? Is that? So on the front end of our guidance at the beginning of the year, we had modeled out sales being basically flat for the year. That's basically what's happening, but we're seeing a little bit difference between the platforms. And so one is coming down a little bit and one is offsetting it and overcoming it. In the outlet business is it a turnover-only deals or you take a percentage from the year before you lock it in and then you do it thereafter? Brian McDade So it is a base rent with overage capability lease. So what you described is more of the European lease structure. No, in the US, we are certainly still a traditional US type lease with base rent. And then obviously, if the tenant is doing well, above its breakpoint we get to participate in that. But it's not a sales percentage deal with the floor like a European lease would be. Jeffrey Spector I was just going to touch on the occupancy. It has been a big focus on the incoming calls we've received. You know that not, hope to achieve the 96% year end record 96.8% but you're, as you said, you're replacing weaker with you believe stronger. How should we think about occupancy across the portfolio like is there a particular focus target? I assume that it's important towards, again not just the merchandise mix, but then that pricing power the ability to lift rent. Brian McDade Sure. Look, there's not a target that we have on the wall that we hope to achieve. I think that's the one unique thing about us as we look at every individual asset on an individual basis and understand what their dynamics are and then that aggregates up to the 96 odd percent. And so we manage every asset on a space by space basis. We're driving occupancy certainly in lease up in certain assets and in some, we're kind of recycling out retailers and replacing them with better. Every asset has its own individual strategy because they are all bespoke assets in their respective markets and have different dynamics going on around them both from the consumer perspective, but also other competition in those markets. But ultimately goal is to continue to drive occupancy and achieve better economics at the end of the day. Jeffrey Spector Are there other things in the leases that we should be aware of. We receive a lot of incoming questions on a mall lease, an outlet lease versus shopping center lease. Okay, shopping centers have historically had lots of options and which limits then the ability to push rent, but now they're trying to convert that more similar to actually the mall lease I believe. But can you talk about leases today besides, of course, the $10 differential pushing the rent. Is there anything that from top down through the leasing team you guys are trying to instill besides maybe the merchandising mix? Brian McDade You know, it's pretty standard fare. I mean, we've been doing this now for a long time. And as you said, we've kind of led the industry and others are now kind of paying attention to what we've done. So no real material changes. You know our leases now are roughly five, seven and ten-year leases basically the duration blends out to be about seven years. Base rent escalators in the 3% range annually, natural break points. So ultimately no reduced break points like we did during COVID to get to give some relief. It's a traditional standard lease. We are back to kind of our normal way of leasing in that respect. And so no real uniqueness to our leases you know not, options are still a part of some of our leases depending upon the tenant, but most of our leasing is in line, which don't traditionally contain lease options for that exact reason. It gives us the opportunity to recapture space and do other things with it more appropriate for the asset. But we have not really seen any material deviation from our historical approach to leasing or the structure of those leases. Jeffrey Spector And then in terms of US regions, are you seeing any differential. The BAC Institute on the last panel stated that we are seeing rents increase faster in retail real estate in the Sunbelt. And we continue to see movement of population growth in our data, people still moving from the coast to the Sunbelt. But are you seeing I guess let's first talk about maybe from leasing demand, you know, are retailers focused on a particular region and then what are you see, are there any differences in the markets from a sales standpoint or consumer standpoint? Brian McDade So on the retailer appointment, man, that is they're very narrow specific. Each retailer kind of has their own approach. Maybe talk Primark for a minute. Big expansion of their business in the United States. They started up kind of on the East Coast and now they're working their way kind of through the smile of the US. And so we're benefiting from that doing a ton of business with them. But that's kind of every retailer has their own bespoke strategy. So there isn't a macro kind of theme playing out here. I will say that we continue to see a bit of underperformance in urban versus suburban. You know you heard David talk about suburban becoming the new or coming back in resurgence. God, it had to be almost four years ago now. And that continues. The urban environment continues to still struggle with crime and other aspects that are just changing people's desire to be in those locations, which is a benefit to us as we, majority of our locations are suburban oriented assets. We don't really have any material big urban exposures. So that certainly is having urban to suburban. And I would tell you that the, where the population is going, so is still a point in the spear of investment. So Florida, Texas, you're still seeing influxes into those geographies and retailers are following their clients and their customers to those geographies and looking to us to help them to get exposure given our real estate located in those assets. You still see some weaknesses on the coast. You still see but the coast traditionally have more urban environments as well. So I think there's a correlation between those two things clearly. But the suburban environment which is where we spend where most of our assets are continues to outperform. And I think you continue to see those states that are taking in the population continue to outperform those that are losing population. In terms of the $1.9 billion debt pay down I think you said at the end of September or is it Q4? Brian McDade There's 900 that matures at the end of September and there's a billion that matures on October 1st, so both. Unidentified Analyst Okay. Do you have any guidance for what that means in reduction of interest expense in [indiscernible]? You are earning that nice return on the cash sitting in the bank right now. Brian McDade So, interest expense will go down, but obviously, I'm also earning about 5.5% on $3 billion of cash, which will leave the system. You talked about the delevering the unsecured debt, but how are you thinking about your upcoming mortgage maturities? And how is -- what financing sources are available for those? Brian McDade Sure. Mortgage market is wide-open. CMBS, both on the conduit and the SASB for the real estate assets, for the retail real estate assets, certainly back in favor. If you think about that market, they have one big troubled spot that used to be a big part of financing, which is office that is no longer part of it. So retail is actually backfilling a void in the market that office has left. So the CMBS market continues to be open and supportive of the assets. CMBS, 10 year money in CMBS land is probably 6.5% today. Unsecured for Simon today on the 10 year basis is about five. So you got about 150 basis point spread between secured and unsecured today. Obviously, we've got exposure to both markets and we'll continue to naturally roll our debt in those respects. But we've seen successful execution of mortgage financing as well. The insurance companies are starting to get back into the retail environment for the best retail assets. So they're again lending against high quality collateral. And then there are some banks that are lending in smaller ways. So there is definitely capital out there, it's more expensive than it was 24 to 36 months ago, but it's available, it's come down in the last four months though by about 100 basis points as we've seen base rates reset lower. Jeffrey Spector After paying down this debt, do you think you're under levered? I mean you know can you take advantage, you did talk about the balance sheet as a weapon, opportunities historically Simon has done some very accretive acquisitions over the years. Like what's the strategy going forward and maybe tie-in the $1.5 billion free cash flow with the redevs. But I guess overall, you know, underleveraged balance sheet, the $1.5 billion free cash flow, how is that going to -- how is that driving strategy and growth over the coming years? Brian McDade Well, look, I think we're always a very prudent financial organization that we believe that having a low levered balance sheet is a competitive advantage, both in just our ability to reduce interest expense by rolling down our interest on a normal course basis, but also prepares us for opportunities to acquire assets to the extent they meet our criteria for acquisition. So I think the balance sheet, I never say we're under levered, but I think it's appropriate levered for the business that we're executing on today. You touched upon the free cash flow. And so we're generating that $1.5 billion a year of free cash flow after our dividend, our growing dividend quite candidly. And the opportunity set is to reinvest back into the business, which is very important to us and to our growth. If you look at our supplemental, we generally have about $1.2 billion committed in capital for our redevelopment business. I do think that number will continue to go higher as we start projects. So it probably will go up to about $1.5 billion through the balance of this year. But if you think about that from a cash perspective, these are 12 to 24 month projects that we're building. And so roughly half of that $1.5 billion would go out the door every year. So we're generating $1.5 billion of free cash flow, about $750 million of it will be earmarked for development, redevelopment growth of the business, which leaves us $750 million left over to buy back our stock, delever the balance sheet, acquire other assets or businesses that makes sense. And so we are in a very fortuitous position of having the financial wherewithal and firepower to be able to execute on the growth of the business to the extent we find opportunities to be value add to the business. Jeffrey Spector So just to clarify, not all of the free cash flow is going towards the redevs and development. Okay. Can you talk a little bit more about the latest redevelopments or densification efforts? You've announced a number of projects or you've had a number of projects, you're adding apartments, we have a housing shortage like I guess what are some of the uses of the foot and redevs and then maybe touch on ground up as well. Brian McDade So redevelopments are going to really be centered around mixed-use opportunities. And so in the recent 90 days, we've announced a variety of projects, including we're buying the JCPenney box at Fashion Valley Mall, one of the best malls in the United States with our partner in that asset and we're going to bring residential to that location. So we'll knock down the JCPenney and build the residential tower there. That great unlevered returns and so that's going to yield somewhere between 8% and 10% unlevered. One of the embedded value drivers of our business is our land basis. Ultimately, as you think about our business, we've owned a lot of these assets for 20, 30, 40 years. And so the land by which we're building our multi or our densification efforts is really not at fair value today, it's a legacy land value. So we're generating relative to the market incremental yield because of that legacy basis. And so we have a running advantage on our projects relative to others that are looking at doing something similar in our markets because of that embedded land value. So there will be more densification, no question across the portfolio. I talked about Fashion Valley. We announced the residential building that's starting under construction at Northgate Station up in Seattle, which was a completely reconfiguration of that property. As a reminder, it's one of the oldest malls in the United States of America and we effectively raised that asset and we've built an office building which houses the corporate offices of the Seattle Kraken, which is the NHL expansion team that opened a couple of years ago. In addition, it has their practice facility as well and we're now building up the community around it with residential hotel, et cetera, to take advantage of that backdrop of that incredibly located real estate. In addition, we also announced at Briarwood Mall in Ann Arbor, Michigan, that we're going to re -- we knocked down a former department store and we're building residential there. And so we are adding the components in the markets that are -- there's a shortage of. And so you talked about housing shortage in California. I do think our California portfolio will continue to see additional densification efforts skewed towards residential. There is advantages in certain local municipalities where there's housing shortage to work through administrative approvals faster and they give you some incentives. So we see this as a great opportunity to add and bring intensity to our assets with consumers. Jeffrey Spector What's the overall return on the densification efforts and redevs? Brian McDade It's right in line with the balance of our portfolio, which is between 8% and 10% unlevered returns. Jeffrey Spector Great. And then in terms of, I guess, how easy is it or is it easier today to sit down with municipalities across the nation or maybe pockets to discuss these densification efforts like where do we stand today or is it still challenging? Brian McDade It's a bit of both. It depends where your municipality, there are certainly more aggressive municipalities that are looking to grow and can see the value in what we're doing. And then there's some municipalities that kind of get stuck in the old ways of thinking about things and not wanting to make investments or not wanting to see it. So it's a mixed bag, but I would say generally, it's more skewed towards positive support versus not supporting us in what we're doing across the country. Jeffrey Spector In terms of guidance, you talked about domestic property NOI growth to be at least 3% for the year. Any new comments on that? Brian McDade No, new comments. I think we established the number at the beginning of the year as a matter of practice and don't update that throughout the year. We let the performance of the portfolio kind of speak to itself. Year-to-date, we're about 4.5% relative to that 3% original guide or at least 3%. Ultimately, back half of the year more seasonality in our certain aspects of our business overage rent is more seasonally towards the back half of the year. But generally the momentum of the business continues, and so we'll see how it plays out, but we're cautiously optimistic that we'll at least make our -- what we've established at the beginning of the year. Jeffrey Spector Great. I know we only have two minutes left, we do have a couple of rapid fire questions, but we could take one more question from the audience. I don't know if anyone has anything. I mean, maybe Tulsa Premium Outlets, interesting, right, Premium Outlets in Tulsa and how the consumers evolved. And you said I think that opened 100% leased. Brian McDade 100% leased with 10 new to market brands opening in the outlet. Traditionally, the outlet is a secondary channel for retailers. The world is changing. And now the location and quality of your real estate matters, whether it's an outlet, whether it's full price, whether it's a strip center, the underlying trade area around it is what drives it and retailers are tapping into all forms of retail real estate because of the scarcity value of high quality. So Tulsa is a great example of it. It was one of the ones that we actually stopped construction on during COVID and then recommenced construction. So retailers have actually been committed to this project for a really long time relative to traditional gestation periods of a development project. So I think Tulsa is a great example of just the supply demand dynamic in the United States and favoring those that have high quality locations. Just one minute on the Asian business with the old Chelsea and I mean it feels like the Japanese money in your [indiscernible] stated it's really quickly to do more. Brian McDade Yeah, Japan is on fire right now, quite honestly, given again, you're seeing Asian tourists coming into Japan to consume. And so markets around Japan are actually suffering a little bit. But our Asian -- our Japanese outlet business is doing incredibly well with our partner. We continue to look for opportunities and sites with them for new growth and I think there's a couple on the drawing board in the next couple of years that you should expect to see us realize upon. You have a stake in Klepierre, France. What is your plan there? Do you get involved operationally strategically? Brian McDade So we've had the stake since 2012. We've seen Klepierre continue to grow in -- develop into an incredibly powerful company within Europe. Obviously, they have a similar backdrop to what we have in the US, which is a weakened competitor base. And so we think Klepierre has a great opportunity to continue to grow in Europe and acquire assets that they can add value to over time. I think they just bought one in Rome here a couple of weeks ago. I do think we're very supportive of their initiatives and what they're doing and we're happy to see them produce solid results. Jeffrey Spector Great. Very quick rapid fire. And I should have introduced my colleague Andrew Reale. Andrew please. Andrew Reale Three rapid fire. First, do you expect real estate transactions to increase once the Fed starts to cut. Yes or no? And if, yes, when do you expect them to pick up fourth quarter '24 or first half '25 or second half '25? How would you characterize demand for space today improving, steady or weakening? Okay. And finally, last year, the majority of the companies at our conference stated they expected to ramp up spending on AI initiatives in 2024. How would you characterize your spending plans over the next year higher, flat or lower? Brian McDade Probably flat. And I said first quarter of '24, I meant fourth quarter of '24 in my first answer. So I just want to make sure that's corrected for the record.