西蒙地產 (SPG) 2021 Q3 法說會逐字稿

Greetings. Welcome to the Q3 2021 Simon Property Group, Inc. Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Tom Ward, Senior Vice President, Investor Relations. Thank you. You may begin.

Thank you, Alex, and thank you for joining us this evening. Presenting on today's call is David Simon, Chairman, Chief Executive Officer and President; also on the call are Brian McDade, Chief Financial Officer; and Adam Reuille, Chief Accounting Officer.

A quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements.

Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to 1 hour. (Operator Instructions)

I'm pleased to introduce David Simon.

Our cash flow increased to nearly $3 billion year-to-date, consistent with pre-pandemic levels. We recorded increased leasing volumes, occupancy gains, shopper traffic and retail sales. Demand for our space from a broad spectrum of tenants is strong and growing and our various platform investments continue to outperform.

Third quarter highlights from funds from operation starts with $1.18 billion or $3.13 per share. Included in the third quarter results were a noncash after-tax gain of $0.30 per share from the contribution of our interest in the Forever 21 and Brooks Brothers licensing ventures for additional equity ownership in Authentic Brands Group. We now own approximately 11% of ABG and a loss on extinguishment of debt of $0.08 per share from the redemption of the $1.65 billion of senior notes.

Our domestic operations had another excellent quarter. Our international operations have improved. However, the quarter was below our budget by roughly $0.03 per share, primarily due to various COVID restrictions. Domestic property NOI increased 24.5% year-over-year for the quarter and 8.8% year-to-date. These growth rates do not include any contribution from the TRG portfolio or lease settlement income. And if you did include TRG and international properties, our portfolio NOI increased 34.3% for the quarter and 18.7% year-to-date.

Occupancy was 92.8%, which was an increase of 100 basis points compared to the second quarter. Average base rent was $53.91. However, that excludes percentage rent. And if you included that, that would add actually another $7 to BMR. For the first 9 months, we signed 3,500 leases for 12.8 million square feet, which was nearly 3 million square feet or approximately 800 more deals compared to the first 9 months of 2019.

Mall sales for the third quarter were up 11% compared to third quarter 2019, up 43% year-over-year. Our sales are over 2019 peak levels. These results are impressive, in particular, given the lack of international tourism, which we believe will start to increase after the restrictions on international travel are lifted beginning next week.

Our company's focus, as you know, is cash flow growth, which will allow us to fund our growth opportunities and increase our dividend. We would encourage the analytic community to focus on our cash flow and its growth, because there are many levers that contribute to it beyond what is contained in one or two operating metrics.

A simple case in point, our mathematical open and close spread has declined yet our cash flow has significantly increased. Leasing spreads are calculated at a point in time. We have studied the leasing spread metric across the various retail real estate companies and highlight the following: Spreads are significantly impacted by tenant mix. Our leasing spreads include all openings and closings, and it's not the same space measure. However, we believe many other companies use only the subset for their calculation.

We do not include variable lease income in our spread calculation, others do. And there's no consistency in approach. We intend to spend the next several months working to achieve uniformity on this metric, much like we did for sales reporting, although the shopping center sector still does not disclose any sales productivity for its retailers. Let's keep in mind that all of these metrics we need to put in perspective, and we encourage you to take this opportunity to refocus on the importance of cash flow.

We opened our fifth premium outlet in Korea and our tenth in Japan is under construction. Our redevelopment activity is accelerating. Northgate Station opened, Seattle Kraken Community Iceplex, and we have many developments ongoing at Fifths, King of Prussia, Southdale and many others. Our share of net cost of development projects is now approaching $1 billion. Our retail investment platform are performing very well, including SPARC, Penney and ABG. SPARC outperformed their budgets on sales, gross margins and EBITDA and we're very pleased with the JCPenney results. The Penney's team has stabilized the business, improved financial results, and we've added private and exclusive national brands to it. Our liquidity position is at $1.5 billion, and there's no outstanding balance on their line of credit. And we're very excited to announce -- and in fact, his first day is today, Marc Rosen. He's joined the company as the CEO. He's got a terrific background, great leader and we look very forward to working with him as he builds on the momentum Penney has established this year.

Penney's success is an excellent example of how to better understand our company. We appointed Stanley Shashoua as the Interim CEO for nearly a year ago and look at the results. Much like the variety of our investments, no other company in our industry has the capability to put an executive in an interim role and produce these results. This is a testament not only to Stanley but to the Simon culture.

TRG is operating above our underwriting, posted also impressive results for cash flow growth, occupancy gains and retail sales, which were 16% higher. As you know, we amended and extended our $3.5 billion revolving credit facility. We refinanced a number of mortgages and our liquidity stands at $8 billion, including $6.9 billion available on our credit facility, the rest in our share of cash. We paid a dividend of $1.50 in September. That was a 7.1% increase sequentially and 15.4% year-over-year.

Today, we announced our fourth quarter dividend of $1.65 per share in cash, which is an increase of 10% sequentially and 27% year-over-year. Dividend will be paid December 31. Now we raised our guidance from $10.70 to $10.80 last quarter to $11.55 to $11.65 per share. This is 85% increase on the midpoint. That's 27% to 28% growth compared to 2020 results and basically $2 higher than our initial budget this year.

And let me just conclude by saying the following. Even though our stock has posted impressive year-to-date returns, we strongly believe it is still undervalued. Our current multiple of 13x is approximately 3 turns lower than our historical average and screens very cheap compared to the REIT sector at 24x and in many cases, even close to 30x.

We have unequivocally proven with our results year-to-date that we've overcome the arbitrary shutdown of our business due to the pandemic and our cash flow has bounced back dramatically, which many had doubted. We have growth levers beyond our real estate assets that are unique attributes of our company. We have proven to be astute investors. We have unique business models and diversity of income streams.

Our balance sheet is industry leading and as strong as it's ever been. Our dividend yield is 4.7% and growing, well covered, higher than the S&P yield of 1.9% and the REIT average of 2.9%, and we have the potential to perform very well in an inflationary cycle. We're now ready for questions.

(Operator Instructions) Our first question comes from the line of Rich Hill with Morgan Stanley.

Congrats on another really good quarter, David. I did want to maybe just understand a little bit more about the sequential slowdown maybe in TRG's domestic portfolio and the international portfolio. Is there anything specifically that would drive that? And I'm really only asking the question in terms of how we should think about forward modeling because I do recognize that your [guide].

No, no, no, you're wrong. It's -- we're just showing our share -- so compared to the gross number last quarter. Okay. So no, it's a good question, but it's just our share.

Okay. Thank you very much for that clarification.

Yes, no, no. I'm glad you pointed that out. Thank you.

Got it. And then I did want to maybe just understand a little bit more about the income from unconsolidated entities. Just to be clear, like last quarter, the noncash gain was included in that number, is that right?

Yes. Yes.

Okay. And then maybe we can just talk about how -- why that number went down a little bit. I do recognize depreciation went up pretty significantly versus the prior quarter. Obviously, seasonality would dictate that the retailers were doing pretty well. Is there anything that we should think about in that number as we look going forward?

No, it's just -- it's probably most impacted by our European and international business, as I mentioned earlier.

Our next question comes from the line of Craig Schmidt with Bank of America.

Great. I noticed going from second to third quarter, you increased your total redevelopment about $83 million, the total investment. But that does not include Taubman. Have you started to make any of your investments in terms of Taubman redevelopments?

Yes. I mean it's progressing the way we thought it would. There's a big master planning in the works on Cherry Creek, but that's -- that will be several years in the making. But no, there's some good stuff happening in that portfolio as well.

Great. And then how should we think about your retail investments in terms of -- I mean quarter-to-quarter, it kind of moves around. I mean should we look at it on an annual basis? Or how should we get the better handle on what you've been able to produce out of your investment in retail?

Well, I think you should think about us as a company that can add value to what we invest in, and you should always -- you should never worry about quarter-over-quarter or you should look at annual results and compare them historically. So I just say that's generally.

But I think we're -- I think the most important thing is, Craig, we're just a different company than what most think of us. I mean we have lots of avenues for growth and our investments in retailers and other companies has proven to be extremely successful. And it will create some variability to quarter-over-quarter, but year after year, I think when you look at our return on investment, return on our EBITDA for those businesses, it's actually quite outstanding.

And if you look at the valuations that e-commerce companies are getting for their dot-com businesses, we've got embedded value here that's pretty exciting. So I would never worry about one quarter over another.

No. I'm particularly thinking about the 11% interest in ABG and what people say that might go for on an IPO. It's very impressive.

Yes. Well, I mean I just -- yes, look, we're just not your -- we're more than just a -- even though we're -- you call us a mall company, I think we've proven to be beyond that, and that's what I'd encourage you to focus on.

Our next question comes from the line of Steve Sakwa with Evercore ISI.

It was nice to see the occupancy up 100 basis points sequentially. I'm just wondering if you could discuss a little bit about your leasing pipeline and backlog. Maybe where do you think occupancy ends at the end of this year and what your expectations are for a recovery in occupancy?

Well, I think it's going to take a little bit of time to get back to where we were pre-pandemic, but I think what's exciting, Steve, is that when we're talking to our folks, they're seeing a tremendous amount of demand, never been busier, lots of new retailers, not -- lots of new uses and I think the action is in our portfolio. So we'll have another increase this quarter upcoming, and then we'll increase our occupancy next year.

I don't -- I can't -- as you know, we never give specific guidance on that, but the demand, I strongly would tell you that it's very good. So -- and it's across the board. I mean it's the high-end retailers, it's the value-oriented retailers. So we're very pleased with what we're seeing.

Our next question comes from the line of Caitlin Burrows with Goldman Sachs.

Nice quarter. I guess maybe just another question on the retailer part of the business. I was wondering if you could go through from a REIT perspective, is there a max how big this business -- how big this can be as a part of your business? And just what's the current goal or ultimate plan for your owned brands? Is it just to grow the existing brands, acquire more, sell it? But just any thoughts on the plans going forward?

Well, listen, we're obviously very dedicated to being a REIT and staying a REIT. And all of these businesses are taxable REIT subsidiaries. So -- and you see that in this quarter in particular, you'll see the big tax expense that is flowing through our P&L. But because we tend to buy these in partnerships, we have really a runway to continue to grow that business. Not to mention that we still have our stack out there that is, in a sense, a vehicle for growth. So I'm optimistic that based on our track record, we're going to continue to find other investments whether it's retailer or similar situated businesses that will continue to add to our unique company, and we'll take it from there.

Got it. Okay. And then maybe just a quick follow-up. I think we'll learn more once the 10-Q is out but until then, just on that tax number in the quarter, could you clarify if that was just related to the retailer income and the taxable REIT subsidiaries? Or if there was anything onetime included?

Go ahead.

Caitlin, it's Brian. There's actually a onetime $48 million number coming through there from the ABG transaction that we had in the quarter. So you got to bifurcate the 2 numbers, there's a $48 million and then the rest is just our normal regular recurring operational tax accrual.

Our next question comes from the line of Michael Bilerman with Citi.

Katy McConnell is on with me as well. David, I was wondering if you can maybe delve a little bit deeper into the retailer environment in the sense that we know sales are extraordinarily strong as everyone's gotten back out and enjoyed buying things again. But the retailers are struggling sort of a little bit below the sales line, right? They're struggling with staffing, they're struggling with keeping products up to date, most of it bunched on ships.

So how are you sort of thinking about it from two sides. One, the retailers that you own and sort of dealing with some of these issues where they're also dealing with their e-com problems, too. And also from the standpoint of how you think retailers are going to approach sort of the store openings next year, given maybe some of the product, giving some of the staffing concerns and how all that sort of mells together now that you're more and more sitting on both sides of this equation in really understanding some of these pressure points.

Well, let me just tackle the backlog and getting product to the stores, which does have an impact on us just with respect to our tenants and then as well as the brands that we own. There's variability. I mean everyone is pretty comfortable or confident -- I should say confident that they're going to get the product in there for the holiday season, but I would tell you that there's no guarantee. So there will be some variability. Absent that, we probably would have felt a little bit better going into the fourth quarter, but we're cautious on it because we just don't know, and it's out of our hands, though I did throw a shout out to Stanley only because, by the way, I trained him, but just don't forget that.

But he did tell me that he was going to -- if he had to go to the port of L.A. and unpack boxes to get them into the Penney store and said he was going to do it. And I said, "Well, that's a great idea. I'll do it too." So we're on call to help. So that's that. I mean if there is variability, I don't know. But I think generally, people are reasonably confident that they'll get their product in for Christmas.

Now with respect to employment, this is well beyond retail. And I mean it's a -- with all the political back and forth going on, it's really not talked about. And just from a CEO point of view and just someone that's worried about growing our overall economy because obviously, we're correlated to GDP growth, we've got to figure out whatever is causing the lack of employment growth. We've got to "get to the root of it" because it's not clear to me that there's a big focus on it.

It has -- finally, getting to your last question, thankfully, Michael, I have not seen it impact folks open to buy or their growth. Could it? Eventually, the answer is sure. But we have not seen it yet. But the lack of employment is an issue, especially and some of our retailers are -- they're doing one shift. They're increasing the salaries of the people there, less part-time. So they're combating it maybe in a good long-term way because they're raising salaries and getting more loyalty out of that. But the increase in restaurant demand has been phenomenal. And that's the area I worry most about is just ultimately whether the employment picture could slow that demand. I don't know right now, but it's a concern.

Right. And so when you throw all this stuff into the pot, you obviously have a lot more earnings and cash flow drivers at time today than it's ever been in your history. Does your disclosure -- to be able to get credit and for The Street to sort of value things to the point which you're talking about your stock being undervalued, isn't it necessary to like sort of break down some of these businesses or to give a little bit more information within the supplemental so that people can really identify each of these drivers from more operating businesses to the more rent business?

Because there's like little pieces, like you have FFO from investments on a trailing 12-month basis in the credit metric section, it would be really good to get that on a quarterly basis. And all those -- I guess are you stepping back? I know you talked about the lease spreads, but is there an opportunity to sort of revamp disclosure to give the investment community more of that level of detail overall?

I mean it's -- we're not going to rule it out. It is our property -- domestic property business, just to put it in perspective, Michael, is around 80% of our cash flow earnings, however -- FFO, however you want to define it. So then we have the 20% other stuff. And I just worry that if we do get into that, we'll spend more time on the 20%.

Now 10 years from now, it may be different. And 5 years from now, it could be different. The 80% could be 50%, and then I agree 100% with your encouragement or point of view that it needs to be better articulated. The other option is we could sell our dot-com business at a huge number in -- like some of the others out there and then you'll ascribe a certain value to it. Believe we wouldn't rule that out.

Yes. You were never in the embarked business to begin with. You and I have gone back on that about selling interest in malls, right? You never want it to be in the market. You wanted that in cash flow and the value.

I mean I'm a terrible seller as I've admitted. In any event, I think -- look, I'm excited about what we're doing. I do think it's still -- it's a tail wagging the dog, but it's an important tail and it's a beautiful tail. And it wags nice and it's very friendly. And as we grow that, I think you're -- I think what you say is certainly appropriate.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

I didn't realize that you and David -- that you and Stanley are both Union Longshoreman, able to work on in the L.A. Long Beach piers. That's pretty impressive.

Well, we'll do whatever it takes to get product into our stores.

Well, I think if you know the Union guys well...

By the way, you could join us, Alex. You could join us.

Union work is pretty tough work unless you can get to the crane operators, those guys make good money. So -- but a question for you, and it sounds like, Tom, we get two questions, so I love it.

David, it sounds like in your opening comments, you said that you were a little bit behind budget because of some of the COVID closures that you're still experiencing. Despite that and backing out the ABG intellectual property gain, which is awesome, you guys still handedly beat. So I know you guys -- I know, David, you like to run your crew really hard and whip and do all the fun stuff, shout, get your team excited to win. But still, it's hard to say that you guys were under budget when you beat consensus as much, and it sounds in your answer to Michael on store openings and labor and all different things, it doesn't sound like there are really any headwinds. It sounds like you guys are just really rebounding strong. So what was the below budget related to as far as...

Yes, Alex. That was just our international ops. So if I didn't say the word international, it's just because I misread it on the script. I said it? Yes. So it's just international. It's the only business that I would say is under our initial budget for 2021.

Okay. So then just drilling into that international part, what are you seeing -- are you seeing anything like the rebound that we've seen in the U.S., whether it's Asia or Europe? Or are the consumer rebound trends very different?

Yes. That's a good question. And it's by country in a sense. So there's no simple answer than I would say to you, it's very much how COVID is impacting that country. As you know, Europe was much, generally in France and Italy, much more stringent on how they open. And as you know, we -- our friends at Klépierre had to deal with almost a -- which by the way, L.A. County almost did, but we'd have to enforce whether or not people had vaccine cards to let them in the mall, which thankfully, cooler heads prevailed. But it really is a country by country. We're seeing a little bit decent results in the European outlet business. And Klépierre is feeling more confident about what they are seeing.

But I would tell you, Asia, generally no, Japan is pretty tough, but that's -- they've had a pretty strict shutdown, Korea's doing just fine. So I'd say generally, the U.S. is clearly outperforming. Other -- just from retail sales than other parts of the country -- other parts of the world, I should say.

And then on your international folks, though, are they telling you like, yes, by January 1, the rest of Asia, Japan, Europe, France, all the different countries in Europe, everyone should be back? Or is there just a continued concern that those countries are going to continue to punt on reopenings and ease of COVID mandates, such that maybe '22 is -- has greatly impacted on the international as it grows.

I'm hopeful '22 will be a better year for them, just like '21 was for us. So -- but there'll be more proactive gentlemen, I say they, I mean, again, it's country by country. But in many spots, they'll be more proactive if COVID spikes. In terms of restrictions, I should say.

Just a quick question for Brian. On the new line of credit where you switched over from LIBOR to SOFR, the net end of the day, the economic impact you guys are still -- are basically paying the same cost? Or this switch over, you guys are ending up paying a little bit more, maybe it's a little bit less? I don't know.

No, it's a push. It's an economic push. That was the old design of SOFR, Alex. The intent was to be economically neutral.

Our next question comes from the line of Mike Mueller with JPMorgan.

Just wondering, outside of the $0.22 of net 3Q onetime items, can you break down what drove the guidance increase for the balance of the year?

Can you repeat that, Michael?

Yes, you had net $0.22 of onetime items that you called out, and guidance went up, I think, $0.85. So what drove the other $0.63 or so of the increase? If you could break that down, how much retailer versus domestic ops?

We don't break that down, but it was a combination of both.

Our next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just hoping you could walk through maybe the quarterly volatility. I know you told Craig not to look at quarterly variances and I apologize for this. But given the movements, it does seem like last quarter, it was reported at share, this quarter is at share and the retailer NOI dipped and the corporate NOI dipped as well, but the guidance went up. So I'm just trying to put these pieces together and maybe get the components for those 2 NOI pieces, retail or corporate and then tying that back to the guidance question that Mike just asked.

Well, Juan, you got to remember here, looking at annual numbers here or even quarterly numbers, there were a variety of retailer businesses that we didn't own last year. So that's part of this noise when you're looking at it year-over-year or quarter-over-quarter. That's a big piece of this. JCPenney didn't close until year-end of last year, which is a big driver of this. So you've got a different population, if you would.

I'm just focused on sequential because the numbers did go down for -- it seems those 2 buckets on a share basis, the retailer investments, NOI and the corporate and other NOIs.

Sure. You have just seasonality and timing on the retailer side of it. And then corporate and other, the bigger changes that we recognized last quarter, a larger amount of termination income.

Okay. And then just more of a conceptual question on retailing. I mean you guys own different pieces of the retailer landscape. You have like the licensing or traditional -- the licensing -- intellectual property licensing and the traditional retailing. How do you think of the multiples that you would apply for those or the stickiness of the cash flows? I don't know if you could talk about typical margins. Just trying to get a sense of maybe where the EBITDA is coming from between those 2 pieces and how you think about those 2 pieces as well?

Where is the EBITDA coming from the retail?

Between the licensing and traditional retailer, yes, because you have the ABG investment, which is (inaudible) the licensing...

This is the -- well, ABG is -- more or less owns the brands, a lot of brands and the license income. The retailers run e-commerce and operate stores. So it's essential, like any other retailer, and the valuation of those should just be the way you look at any other public company retailer. I will tell you today, I mean, from an EBITDA multiple, retailers are more valued at a higher EBITDA multiple than Simon Property Group.

And what is a better margin business do you think, the licensing or the traditional retailing?

Well, the licensing, I mean that's a -- licensing business, are you amortizing the cost of buying the license or not? So the brand, if you don't -- they have a higher margin, but the gross margins of good retailers are in the 60-plus range.

Our next question comes from the line of Vince Tibone with Green Street.

How are same-property operating expenses trending versus 2019? Are you experiencing any pressure from wage inflation or extra cleaning costs, given most of the retailers are on a fixed CAM basis?

Not currently, no. I think we'll see how it impacts '22, but not rising costs from our standpoint in '21, shouldn't be all that material.

Are you much higher than where you were in '19? Or is it kind of adjusted for occupancy changes, like margins more or less the same in your mind or kind of expense ratios?

Yes. I'd say -- well, other than the drop in occupancy, I think in terms of operating, it's probably pretty similar to '19. Yes.

And are you thinking about -- go ahead, sorry.

No, no. That's it.

I [wanted] to say are you thinking about the way CAM structured any differently now, given the prospects of higher inflation? Or -- yes, just curious to get your thoughts there.

Not really. No. I think the fixed CAM and obviously, it grows in many cases, tied to CPI. It's just an ease of doing business with the retailer, and I don't see that changing.

Got it. Maybe one last quick one for me. Could you just share your latest expectations for domestic property NOI growth from the year? I think the last time you formally said anything, was it 5% at the beginning of the year? And I think it's clearly higher from there.

It's going to be higher, Vince.

Any number you could throw out there for us?

Well, now we look at these things on an annual basis, but I'd hate to put a number in, but we're going to be really, based on where we were and what we guided to, we'll -- we should double it more or less, right? More or less. So yes, I mean, I think, what do we guide to, 4% or something?

4% to 5%.

Yes. So we'll be -- we should be in that range.

Our next question comes from the line of Floris Van Dijkum with Compass Point.

I sometimes wonder whether people are not seeing the forest for the trees here. I mean your guidance for the year is $0.60 over '22 estimates right now for consensus, which is -- I suspect those numbers are going to have to come up drastically.

Let me get to my question here. It's about the leasing environment. And I'd love to get your color on what you're seeing, obviously, that you talked about the leasing spreads being negative. And again, those are backwards-looking, because those deals were negotiated, call it, 3 to 6 to 12 months ago, obviously, when we were in a different environment. There were many articles written about tenants wanting more turnover sales rent-based structures. You talked about that in the past quarters about offering some of that. But actually, as sales now are in excess of '19 levels, comfortably in excess apparently, are you actually capturing more rent? And what do you think that's going to do for your overage rent?

And also how is that impacting your negotiations with tenants? Do they want to go back to the fixed rents with a smaller turnover base? I'd love to get your thoughts on that.

Yes. Thank you, Floris. So I would say, look, our overage rent is going to be significant this year. But I do want to put -- I want to underline, we still do not have international tourism. So we think there's another -- and I don't believe now the rules of who can come where and how and whatever are very, very confusing. Having made my own 2 international trips, I get confused on what I have to do to go from one place to the next. But next week, there is a lifting of international tourism. I think it's -- we'll see whether it has any impact this year as kind of I doubted.

But even with overage rent having a very good year this year, we still think that there's another leg up if we get kind of the international tourists that we haven't seen for a couple -- 2, 3 years, right? And now the strength of the dollar may offset that to some extent, but we'll see.

On your question about lease, listen, I think some of the folks that wanted to tie their rent to -- and we did it in a select few cases, not a lot, but yes, they may suddenly think maybe they should do another kind of traditional -- go back and do a basic deal. But by and large, Floris, there's not a lot. I'd say the negotiations about the structure of the lease and overage rent, I call it overage, but overage rent and break points is all pretty -- it's all, I'd say, pretty consistent. So not a huge change in what's going on there.

And David, maybe if you could touch on the specialty leasing environment as well. Obviously, last year, when a lot of your malls were closed, clearly, you couldn't have much kiosk income. Obviously, billboard income is really driven by economic growth. So that presumably was very low last year. What do you see -- I mean, this is -- could be up to 10% of your NOI. I mean how do you see that part of the business performing as we head into '22?

I think we're going to have a very good year in '22 on that side because, again, it -- there's just a better appreciation for our kind of product and demand is good there and growing, and traffic is still reaching previous levels. So I think they're going to have a very good year this year, but a better year in '22, at least from our initial kind of review of that business plan that we just had recently.

Great. I mean maybe if I ask -- I mean I sort of was asked before, but certainly, the backlog of leasing, can you give us any more insight? I know somebody else asked a question about that. But certainly, in terms of what that could mean in terms of occupancy gains in '22, because clearly, that's the easy income, if you will, because it all drops down to the bottom line. Any sort of backlog that you're working with right now? Your leasing is busy and stretched to the max, I would imagine.

Listen, I always worry they tell me what I want to hear. But what they're telling me, okay, and what I'm seeing on my own, having to deal with a few retailer space demands, demand is good. So I think, listen, the world is uncertain as all get out, right? I mean we all know it's just -- it's a very interesting time the last several years and this -- and the future is no different.

But Floris, the good news is the demand for our product is good. And our folks are busy and they're hitting the streets and making deals. So again, we never give an occupancy number, but I would be very disappointed if we didn't have an uptick in occupancy next year.

Our next question comes from the line of Greg McGinniss of Scotiabank.

David, maybe asking Mike's question a bit differently and doing some back of the napkin math here. So FFO per share guidance appears to anticipate a slowdown in Q4 versus Q3 after adjusting for the noncash items. Could you help us understand what items might be impacting those expectations?

You're -- versus what you are doing or what we're doing?

You have 2 91 in Q3, if we take out the noncash items and then that kind of assumes 2 70, 2 80 in Q4.

We'll see what we earn. We don't really look at it quarter-by-quarter.

All right. Then maybe shifting gears a little bit to the percent rent leases. First, I'm just trying to understand what portion of leases signed this last year are tied to percent rent deals? How does that compare to history?

And then you also mentioned that overage rent will be significant this year. Is there going to be seasonality associated with that? We're just trying to understand if we should expect a sizable pop in Q1 next year as Christmas sales and associated rent are calculated or if it should be smoother throughout the year?

Well, overage rent does -- is impacted by holiday shopping. So there is some seasonality to it. We don't give out the specifics on what deals are percent versus fixed, though, the -- it's not a very big number. I mean overwhelmingly, a high, high, high percentage of our leases are fixed and sometimes, we have unnatural breakpoints, which we can get into the mechanics of that later, if you'd like, where we do maybe -- and in COVID, this is -- we did a few -- a handful with some retailers, where we may be lowered the fix, but we got greater upside on sales. But 90-some-odd percent of our leases are all fixed rent. And I think I answered your question, unless I missed something.

No, you did. So if we think about how leases are getting signed now, now that we're coming out of COVID, should we expect to see those -- that percent rent number go down and maybe just base rent numbers start going back up again?

Well, yes, and roll over, sure, over time. I mean, again, it's a function of when leases expire.

Our next question comes from the line of Haendel St. Juste with Mizuho.

David, so you mentioned earlier the stock being cheap, 13x FFO, I get it, and you point out your long-term average. But I guess the one missing piece that we haven't seen is the asset value clarity. I guess I'm curious where you peg A mall cap rates today. Was there anything in your recent mall refinancing negotiations that was informative about how the lending community is viewing mall values? And how would you characterize the market appetite for mall refinancings today?

Good. I think we did -- how many financings did we do?

We've probably done 22 this year, almost $3 billion. The market is open from a refinancing perspective and supportive of high-quality assets.

Yes. Look, I think we're -- I'd say we're A-ing assets. There's -- I mean I've discussed this before, and not to bore you, but there's not a lot of buyers, and sellers realize how valuable they are. And they want a really low cap rate. There's no A asset in this country that would sell for anything above a 5% cap rate, in my opinion, in my humble opinion.

I appreciate that. I was looking also if there's anything from the other side that you could share from how the lenders are valuing or any clarity on...

I thought you were an equity analyst. Why do you care about lenders?

Well, there's a value which the loan is ascribed to.

I mean, look, they look at debt yields.

Debt yields and cash flow coverage is the metrics that they're using more importantly.

And sponsorship out of the source.

Okay. Well, I guess I'll move on to my next question. I wanted to ask about the pricing and demand for your JCPenney boxes. Anything you could share on that?

Well, the ones that we own, we're not selling because Penney is just performing terrifically well.

Alex, we have time for one more question, please.

Our final question comes from the line of Linda Tsai with Jefferies.

In terms of the $7 of variable rents that weren't included in the base minimum rent, when would you expect to see improvement in that number? And how much of those $7 could be moved to fixed?

You mean improvement? Or just when it goes to fixed essentially, right?

Well, I guess two separate questions. When it goes to fixed? And then when would we see like an overall improvement in base minimum rents, given the moving pieces?

Well, I mean, it's lease by lease to build that number up. I mean demand is picking up, so we're focused on driving our cash flow. But again, as I -- maybe you missed my -- maybe it wasn't overly compelling, but you missed my opening remarks in that I would recommend -- again, I know I'd recommend you just kind of look at the cash flow of the company and not overly worry about a metric here or there. It just -- it all kind of manifest itself in the cash.

In terms of when that will end up in base rent is really, as I said earlier, is just going to be a function of when that particular lease rolls, when it expires. And traditionally, when that does, we're usually pretty effective at trying to garner as much of that overage rent or that percentage rent above the break point back into the base rent.

Got it. And then store closures are way down from prior years. And given the importance of holiday to retailers, but also challenges around supply chain, do you think this is potentially a threat to some of the smaller, lower credit retailers?

I don't think so. And honestly, the credit profile of the retail community is not bad. I mean there's always going to be a few out there, but I would say, generally, the credit profile is pretty -- not going to look, pretty good. So the retailers are always turning their portfolio and so on. But I don't think the supply chain is going to cause -- it might unfortunately cause a local mom and pop some stress. But I don't think it will cause a regional or a bigger chain financial calamity.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to David Simon for closing remarks.

All right. Thank you, and I appreciate all the questions. We'll talk soon.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.