Simon Property Group - Earnings Call - Q2 2011
July 26, 2011
Transcript
Speaker 5
Okay, ladies and gentlemen, and welcome to the second quarter 2011 Simon Property Group earnings conference call. My name is Tanya, and I will be your conference moderator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, which you may press star one at any time to join the queue. If at any time you require operator assistance, please press star zero, and an operator will be happy to assist you. I would now like to hand the presentation over to your host for today's call, Shelly Doran, Vice President of Investor Relations.
Speaker 0
Good morning, and welcome to Simon Property Group's second quarter 2011 earnings conference call. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from those indicated by forward-looking statements due to a variety of risks, uncertainties, and other factors. Please refer to our reports filed with the SEC for detailed discussion. Acknowledging the fact that this call may be webcast for some time to come, we believe it's important to note that our call includes time-sensitive information that may be accurate only as of today's date, July 26, 2011. During today's call, we will discuss certain non-GAAP financial measures as defined by the SEC's Regulation G. Reconciliations of these measures to the most directly comparable GAAP measures are included within the earnings release or the company's supplemental information package that was included in this morning's Form 8-K.
This package is also available on the Simon website in the Investor section. Participating in today's call will be David Simon, Chairman and Chief Executive Officer; Richard Sokolov, President and Chief Operating Officer; and Stephen Sterrett, Chief Financial Officer. I will now turn the call over to Mr. Simon.
Speaker 4
Okay, good morning, everybody. Thanks for joining us. We reported FFO of $1.65 per share for the quarter, which represents an increase of 19.6% over the prior year period. These results exceeded the First Call consensus by $0.07, and we now have met or exceeded expectations for 28 of the past 30 quarters, which we believe is one of the best records in the REIT industry. Of course, I would like to talk about two of the quarters, the two quarters that we did not do that. One was an impairment charge, which we took on Liberty, which is now fully recovered. The other was just a timing issue, which we made up in the subsequent quarter. In fact, in that year, we exceeded both consensus and our initial guidance. So 28 of the past 30 quarters, we have met or exceeded First Call consensus estimates.
Let's talk about the portfolio. Total sales on a rolling 12-month basis were $513 per square foot, up 9.4% from $469 as of June 30, 2010. Occupancy was 93.5%, an increase of 40 basis points higher than the year earlier period, and 60 basis points higher than the first quarter. The releasing spread for 12 months was $4.00, positive $4.60 per square foot. Our releasing spread continues to include all inline space, including spaces larger than 10,000 square feet. Comparable property NOI growth for the quarter was 3.5%. I want to put that in context that in 2010, our second quarter comp NOI growth was a positive 1.9%. It was not off a low base, given the fact that 2010 was still in recovery mode. Let me turn to development activity. We have two new developments under construction.
Both are Premium Outlets: Johor, Malaysia, which will open in November of this year, and Merrimack, New Hampshire, which will open next summer. Leasing activity is strong for both projects. We have 18 renovation and expansion projects under construction with completion dates in 2011 and 2012. The restoration of Opry Mills continues with the completion expected in the spring of 2012. We currently plan to invest approximately $650 million in domestic and international development and redevelopment activities in 2011. Our number, though still in process, is approximately $800 million in 2012. As always, details on costs, returns, and timing of these projects are provided in our supplemental reporting package. In June of this year, we sold a Jefferson Premium Outlet, or Prime Outlet, I should say, for $134 million.
We used $86 million of those proceeds in a 1031 exchange last week to acquire ABQ Uptown, a 222,000 square foot lifestyle center in Albuquerque, New Mexico. The center, which generates sales of approximately $650 per square foot, adds to our presence in the growing Albuquerque market, where we also own Cottonwood Mall. Let me switch to capital markets. During the first six months of 2011, we closed our lock rate on 15 new mortgages, totaling approximately $1.6 billion, of which our share was $1 billion. The weighted average interest rate on the loans is 5.1%, and the weighted average term is nine years. As of June 30, 2011, we had $1.1 billion of cash on hand, including our share of JV cash and our availability in our corporate credit facility of $3 billion for a total liquidity position of $4.1 billion.
As we said before, we still expect to generate a billion dollars, more than a billion dollars of cash from operation after dividends. Japan, let me just tell you that we reopened Sendai Premium Outlet, which was damaged by the earthquake and closed. On June 17th, the center reopened, and the response from the shoppers has been very positive. Costs of the repair of the center, other than the deductibles covered by insurance, forever. For our other seven centers in Japan, things are returning to normal. We continue to like the prospects in our Japanese business and admire the will of the people in Japan as they rebuild and grow their country after some of their tragedies. Now, let me turn to guidance.
Based upon our results for the quarter and expectations for the balance of the year, we increased the low end of our 2011 FFO guidance by $0.10 per share and raised the top end by $0.08. The midpoint of the range of our current guidance is $0.165 above the midpoint of our original 2011 guidance provided in February. Let me just mention in Main Street Fairness Act, you've seen some editorials, in fact, in the Journal today or an article in the Journal. You saw the Indianapolis Star wrote an editorial on it. Let me just say that we've been very vocal about the unfair advantage that internet retailers have in not being required to collect sales tax. We are urging Congress to introduce and pass the Main Street Fairness Act, which will allow states to end the subsidy being provided to retailers such as Amazon.com.
Let me be clear, this is not a new tax. It would merely require internet retailers to collect sales tax on behalf of the states where they do business, something that brick and mortar retailers and even those who sell on the internet have done for years, and this is required by law. The economy is helped by having a level playing field, allowing an open market to determine consumer behavior without government subsidies, which we believe is occurring for the online retailers. Now, just a few concluding remarks before Q&A. We are certainly proud of the size and scale of the portfolio we have at Simon Property Group. As we have said many times, our business is where scale can be truly an advantage. I believe that our industry-leading operating results, growth, and profit margins are an absolute testament to that.
I do think, however, that sometimes the quality of our portfolio is not fully appreciated. Our portfolio is second to none in our industry. We own more of the country's iconic shopping destinations and centers by far. To help illustrate this fact, I will point out a few facts. First of all, in the mall sector, the 20 malls from which we get the most EBITDA provide approximately $800 million of EBITDA annually, and this is our share. As of June 30, these 20 properties generated sales of $777 per square foot. Now, let me turn to our top 20 value centers from which we get the most EBITDA provide over $600 million of annual EBITDA. Again, this is our share. As of June 30, these 20 properties generate sales of $721 per square foot.
Just as a reminder, given the focus on the value and outlet sector that seems to be occurring in the marketplace, our share projected this year from that platform will generate approximately $1.5 billion. That's $1.5 billion of EBITDA from our value-oriented centers, both mills and the outlets. With that, operator, we're prepared to answer any questions.
Speaker 5
Thank you, ladies and gentlemen. If you wish to ask a question, please press star one on your touch-tone telephone. If your question is answered or you wish to withdraw your question, press star two. You may begin by pressing star one at this time for all audio questions. Our first question will come from the line of Jeffrey Donnelly with Wells Fargo. Please proceed with your question.
Speaker 3
Good morning, guys. David, since you left off with the outlet center, I guess I'll start there. First, here at home, there's been a growing push to recast busted malls or retail projects, these outlet properties. Are you concerned that supply of new product could exceed demand in some markets and segments? How do you think about differentiation in that sector to assure success? Is it location, size, price point? What do you think?
Speaker 4
You broke up the first part. Could you read? I didn't hear it all. Could you?
Speaker 3
Yeah, that's fine. I was saying that there's been a push here at home in the U.S. to recast, you know, retail properties as outlet-focused properties. Do you think there's some risk that the supply of assets could surpass the demand in the next few years?
Speaker 4
Look, my own view is that I think it's going to be a challenge to build many of the new outlet centers that are being bandied about. There's been a list of 50 outlet centers out there that are in pre-development stage for several years. We think, obviously, demand is good, but the retailers and manufacturers are very sensitive to where outlets can be put. We think the market should be circumspect to the amount of new outlet development that's being talked about. There will be some. I think it'll be more challenging than what people believe. I do think there'll be some mistakes made, but I don't see a redux of the lifestyle center development. Never put it past real estate developers to overbuild. I'm hopeful that year after year, experience will lead to better judgment.
In this case, I do think the retailers and the manufacturers are very sensitive to their full-price operations. I think that's a governor here that probably will not be a redux of what we saw in the lifestyle center area. I think the redevelopment of existing enclosed malls to do this again will be in that same category and more challenging than people lead on.
Speaker 3
Sticking with outlets, what do you see the development yields on Johor compared to, say, the projects in Japan and Korea? I'm just curious, thinking down the road, ultimately, how big of an opportunity do you think there is across Asia for outlet properties in your portfolio?
Speaker 4
The yields there are actually, we think they're going to be fantastic. The yields in Japan have been very high, higher than in the U.S. Malaysia, we're projecting to be higher than the new development yields here. We think all of the everything that's lined up to build there is, the consumer is there. The growth in income is there. They love the American-European brands. It's all lined up to continue to grow that. We've been successful in everything that we've built from Korea to Japan. We see the same thing in Malaysia. As you know, we're back to really seriously thinking about China for outlets. We think there's an opportunity to continue to grow that business in Asia for us.
Hard to put firm numbers on it yet, but the good news is we've got 10 centers, soon to be 11, and we've got a good, good, solid business already up and running. We've been at it for several years.
Speaker 3
Just one last question on asset sales here at home. You know, you guys have been in the market with some malls recently, and there's been some transactions on A malls. I'm curious, where do you see pricing on sort of A, B, and I guess I'll say C assets right now? Because we've heard some A malls actually touching 5% caps or lower, and I'd just love your perspective.
Speaker 4
We have seen some, you know, again, we've seen some price talk on some, let's call them A assets. I'm not sure, you know, whether they're a mall or an outdoor center or whatever, however you want to describe it. A couple of these we think are more salty than they should be because we don't see the growth that other people that are buying them seek. Now, you know, we could be wrong. They could be right. We think pricing on some of these individual assets that are out there are still, you know, what we see is very aggressive given the lack of growth characteristics in some of these assets. On the B and C, Jeff, I would tell you we're still all in a discovery mode in terms of where the market is.
Obviously, we've told you we have nothing to announce in that area, though we do have, you know, a very small amount of malls for sale as part of our strategy that we've had for years to sell assets here and there. The B and C assets are more dependent on financing. The financing market in that area continues to be somewhat volatile. I still think we're in price discovery on those kind of assets.
Speaker 3
Okay. Thanks.
Speaker 4
Thank you.
Speaker 5
Our next question comes from the line of Quinton Felleli with Citi. Please proceed with your question.
Speaker 3
Good morning. It's Michael Billerman here with Quinton. David, I guess I'll start with you. Obviously, during the quarter, you had your employment contract set up under a long-term basis. I want to just focus on the length of time that it got to take to that place. Obviously, when the proxy came out in April, it was disclosed that you were working with the board towards something. In the disclosure, it talked about it taking that you've had negotiations for 18 months. I'm wondering if you can just talk a little bit about what transpired over a year and a half in terms of setting the goals that you wanted to achieve and that the board wanted to achieve, and how you ultimately got it resolved a couple of weeks ago.
Speaker 4
I get, look, I think, Michael, it took longer than it should have. I think part of the length of it is just the care that the comp committee took in deciding what was appropriate. Obviously, these kind of things are very sensitive, very focused, given, you know, rightfully, I have no problem with the scrutiny that something like this comes with. I think, again, I wasn't privy to the comp committee's deliberations, but my guess is given what was going on, that they took a lot of time to feel comfortable with it. Also, there's been a lot of volatility in the world during this period of time. Obviously, my primary focus over the last 20 months has been running this company, and this has not been the number one agenda on my plate.
I do think, again, I was not part of the comp committee deliberations, but my guess is they studied past performance. I'm sure they looked at some of the recent comp deals that were out there for new and existing chief executives. I'm sure they considered if for whatever reason they had to replace me, what it would cost for a new CEO, and just generally, what are the requirements that the company needs to lead the company from a CEO in the future. With all that said, I think they concluded that the deal they struck with me was in the best interest of the company. The share amount was generally the same for that long period of time.
The size of the apparent transaction, it's an eight-year deal, which I think the market sometimes loses sight of, got bigger because the stock has performed well over that period of time. I don't know if that answers your question, but they were sure they were very deliberate in their efforts. I was very focused on running the company. We've been living in a very volatile world. You put all that together, and it takes a pretty, pretty long time. From my standpoint, I've been doing this for, I've been running this company for 16 years. It was appropriate for me to kind of assess where I was, what I wanted to do in the future. I wanted to work out a deal that recognized what I brought to the table. Over that 16 years, I want you to realize that I've never had an employment agreement.
I've never had a deal. Both from my standpoint and I believe the comp committee's standpoint, though I can't speak for them, we both felt it was appropriate to negotiate something for a longer period of time that delivered a certainty and that we all felt, myself included, because I'm a shareholder, that was in the best interest of the company.
Speaker 3
You get to do 32 more earnings calls.
Speaker 4
Yeah, I can't guarantee the performance we've had in the past 30, but hopefully, we'll have some level of success along those lines.
Speaker 3
That's helpful color. Just diving into the portfolio stats that you gave at the end of the comment, the top 20, the top 20 malls and top 20 value. The value you're saying are what? Mills and outlet centers?
Speaker 4
Yes.
Speaker 3
You're combining that?
Speaker 4
We are. It included a couple of mills, but generally, we included both.
Speaker 3
Those top 40 assets are about $1 billion for EBITDA on a base of, call it, $3.5, $3.6 billion. Forty assets, 20% of the asset base is generating 40% of the EBITDA. Is that the way we should think about it?
Speaker 4
Correct, Michael. That's our share as well.
Speaker 3
Right. When you step, the rest of the portfolio probably is mid-$400s in terms of productivity.
Speaker 4
Look, we gave you some facts today. Maybe we'll give you more facts later. We thought that would be helpful for people to understand. At least, again, people lose sight of the quality that we have embedded because of the size. We understand that. We don't like to tier assets, even though Rick does, and it bothers me, but I let him do it. We want people to know that our top 20 assets in these categories generate a lot of cash flow. I think over time, we'll be more descriptive to everyone, kind of how we look at it. That's what we want you to start thinking about at least today.
Speaker 3
Great. Thank you.
Speaker 4
Thanks.
Speaker 5
Our next question comes from the line of Jay Haberman with Goldman Sachs. Please proceed with your question.
Speaker 3
Good morning, everyone. Maybe following up where Michael just left off on the top 20 on both the malls and the value centers, are you willing to share, David, perhaps some of your near-term outlook, what you think NOI growth could be perhaps for some of these top-tier assets relative to the rest of the portfolio?
Speaker 4
I don't have a specific number, but it's safe to say that these are under-rented, and they're going to grow faster than our average. They possess a lot of upside. I don't have, if Rick or Steve want to add anything, but I don't have anything more to say other than that. They certainly historically have generated significant EBITDA growth better than our average.
Speaker 3
Maybe even just stepping back broadly for the entire portfolio, if you think about this recovery to date, combined with sort of where the economy is today and somewhat mixed, what's your general perspective in terms of where we are for rent growth going forward in the cycle?
Speaker 4
I would say we feel pretty good other than there are a couple of tenants out there that, again, I'm not going to name names because we certainly shouldn't be in that business publicly. There are a couple of tenants that are sizable mall operators. When I say mall, that could be both outlet and full-price malls that still haven't had the benefit of the recovery that are going to put pressure on the industry and us included in terms of renewals and potential store closures and the like. That's the biggest headwind. We've had that headwind. It hasn't gone away. We've been managing our way through that headwind. That, to me, is the biggest headwind that's out there for us in terms of what we have to deal with on a day-in and day-out basis. Our leasing people obviously understand that. They know that.
They're out humping to find those replacements, either through voluntary or lease expirations or to the extent that even one or two of these guys could end up in a Chapter 11. That's the governor right now that we see. The consumer actually, I feel a little bit better about. Look, we all know we live in an extremely volatile world. We could witness last night and understand that, what happened on TV last night. I would say that's the biggest headwind that we've got to deal with.
Speaker 2
Okay. The only thing I would add, it's Rick, is that our portfolio is not static. As you look at the potential for NOI growth, we're renovating 20 properties. We're adding a considerable number of additional anchors. We just announced in today's press release three additional department stores as we continue to lease up our properties with more productive and impactful tenants and restaurants. We're enhancing the market share, and the better we make our properties, the faster our growth is going to come.
Speaker 4
We have some major redos that are in works that, you know, we may take some space out of service that, you know, we're redoing the food court, all sorts of that stuff that, again, it's not overly material, but it might have somewhat of a governor on our EBITDA growth. We are performing, the point is we are performing better today than we thought we were. We're beating our budgets, and that's the good news.
Speaker 3
I guess Rick sort of took my last question, but if you think about the $650 million of development and redevelopment for this year and $800 million, I guess you're planning redevelopment for next year, it sounds like that billion and a half target you guys had outlined for three years, you're perhaps going to well exceed that. Is that a sign of you just want to reinvest more in the existing portfolio rather than look for acquisitions at this point in the cycle?
Speaker 4
I think those possess, at this point, greater opportunities for us. We've always felt, you know, taking what we've got and making it better is a huge priority. One of the reasons why we brought David on board was to help us do all that is there to do with the existing portfolio. I'd say from that standpoint, we're very pleased with the amount of activity that our teams are generating. That's not just the malls, that's the outlets. We've got expansions in the outlet side that we feel good about, like in Seattle, in Chicago, potentially in Woodbury Commons, Allen, just to name a few. The best thing we can always do is take a good property and make it better. Now that we feel good about capital and feel good about what our teams are doing, that's the number one priority.
Speaker 3
Thank you.
Speaker 5
Our next question comes from the line of Paul Morgan with Morgan Stanley. Please proceed with your question.
Speaker 3
Hi, good morning. Just on international, I want to get a feel for how you're thinking about the investment landscape outside the U.S. I mean, you have your Asian developments, but have you thought more recently about acquisitions? I mean, a lot more U.S.-based mall retailers are looking to grow outside the U.S. I don't know if that's having any input into the way you think about international investments, both from an acquisition perspective and maybe anything that would lead you to accelerate your development pipeline beyond the couple of times you've got going in Asia.
Speaker 4
On the development side and internationally, you're talking?
Speaker 3
Yes.
Speaker 4
Look, I think the big frontier there is whether or not we do something in China on the outlet side, and we're spending a lot of time on that front. We've got at least a couple more Japanese outlets to do, and we're looking at another one in Korea. The answer in the Asia new development is, you know, we still want to dot the I's, cross the T's, but there's more to do there. That could be accelerated to the extent that we do something in China. Internationally, generally, when you talk about acquisitions, we mostly talk about Europe and potentially what's going on in South America. I will tell you that we're thinking a lot about it. It's very interesting. When we initially went into Europe in 1998, we had this premise that the U.S. retailers were going to come. Fact of the matter, they didn't come.
Now they're, you know, but we were still successful. Now they're coming. There is some industry logic to do it. We have felt comfortable we could add value, but the deals there to do a sizable deal are, you know, we don't want to just buy one off here and there. We think we would really want to try and create or invest in the platform. Those deals are not easy, but it's on the radar screen. We spend a lot of time thinking about it, but it's very hard to predict, or in fact, whether or not anything will ever transpire there. The math is always a challenge, and we don't feel compelled to plant a big flag there because we've got lots of stuff to do here and lots of growth opportunities with our existing platforms, including Asia.
Speaker 3
The focus would be right now is kind of equally between developed Europe and South America, say?
Speaker 4
Yeah, I think we've studied a lot in both markets. We actually have a trip scheduled. Contas knows Brazil pretty well. He served on the board of BR Malls for a long time. That's a market we're not in. Who knows? I think I have my own view. It looks a little toppy, but long run, long term, you got to look at all these things.
Speaker 3
Do you think we'll have news about kind of what you're thinking about doing in China this year sometime?
Speaker 4
Potentially. Potentially.
Speaker 3
Okay. Thanks. My last question is just maybe for Rick. Could you walk through maybe some of the, you know, we're not hearing much about that many new concepts in the malls compared to maybe other points in the cycle. I mean, can you talk about who sort of you've been doing deals with and particularly anything that might be, you know, a growing concept?
Speaker 2
We have a lot going on with a number of our traditional retailers. In terms of the new ones, Love Culture, Pandora, Lego, Sperry, Francesca's, Teavana, Cotton On, Madewell, Lululemon, Michael Kors, Tilly's, those are all relatively newer concepts, and they're all growing very aggressively in our properties. From that regard, it's very encouraging. When you also take into effect that recently we had the Fresh Market, Francesca's, Pandora went public, Teavana, I think is going this week. The equity markets are being very receptive to providing growth capital to our retailers, and that's certainly benefiting us.
Speaker 3
Yeah, some of the existing concepts have been trying to downsize lately. Are you seeing it kind of work both ways? Are there as many concepts looking to grow, or is it kind of a general theme of trying to get your space to be more efficient?
Speaker 2
I think that for the more mature concepts that are saying our store count perhaps is too large or not as productive, we've got people that are very focused on growing, and the fact that our occupancy keeps going up is testimony to that.
Speaker 3
Great. Thanks.
Speaker 4
Thank you.
Speaker 5
Our next question comes from the line of Cedric Lochant with Green Street. Please proceed with your question.
Speaker 1
Thanks. Looking at the activity on the big box side, obviously, you've added a lot of big boxes, or you will be adding a lot of big boxes in the near term. David, do you think it prevents some mall development when you have the likes of Macy's adding a lot of space in existing malls?
Speaker 2
Yeah, I think so, Rick. I think that one of our main strategies is trying to maintain the viability and market share of our properties. To the extent that there is demand in a given market, to the extent that we can capture that demand by expanding our existing properties, it's a win-win for us. As David pointed out earlier, that's the surest way to get appropriate risk-adjusted returns. In addition, we're making our properties stronger.
Speaker 4
Yeah, I think the demand from the boxes to go into proven retail centers, including the malls, is just, you know, it's just greater. We're taking advantage of that trend. The pressure out there, certainly, there's pressure on certain malls, but there's a lot of pressure on a lot of strip centers just because, you know, if you lose an anchor or two in a strip center, that thing comes under immediate pressure. The boxes seem to want to relocate where the action is, and in many cases, that's the enclosed shopping center.
Speaker 1
As far as preventing development in future centers, do you hear from some of the big box retailers, in particular department stores, that by committing to so many existing malls, it's probably delaying their interest in committing to future development?
Speaker 4
It's interesting. I just, we still a little bit, but I would tell you that the biggest issue on new full-price retailer demand is probably not from the boxes, but more just to make the numbers work and what the real small shop demand is to make the numbers work. That would be my, Rick, you can add to that, but that would be, you know, that would be more of the governor than, you know, some of the boxes. Don't you think?
Speaker 2
I agree with that. Just to give you an editorial comment, one of the things that we have heard from our department store and big box clients that are the retailers is that 2008, 2009 taught them that who their landlord is matters. What we're finding is that there is a higher degree of interest in coming into properties where they know the landlord has the commitment, has the capital, and has the ability to renovate as needed, bring in new retailers, and maintain the market share of those properties. As David said, there's very little new development out there because there's not enough demand to generate a 300,000 or 400,000 square foot new project. The retailers are looking to come into the established properties.
Speaker 1
Okay, that's helpful. Switching tracks, just talking about outlets for a little bit, you struck a JV with Jamestown in Houston last month. Is it a partnership you'd like to expand to other markets, or was it a one-off event?
Speaker 4
Right now we're focused on Houston. It's been a very positive discussion with Tanger. We made a handshake, and it got documented quickly thereafter. We're excited about Houston. We're going to start construction probably in less than a month in August. We would never rule out doing more business with Tanger, but that's the number one focus right now.
Speaker 1
Okay, thank you.
Speaker 4
Thanks.
Speaker 5
Our next question comes from the line of Nathan Isby with Compass Point. Please proceed with your question.
Speaker 3
Hi, good morning.
Speaker 4
Morning.
Speaker 3
Just staying on the outlet centers for a minute, two quick questions. As you look at some of the centers that have been announced or been in the press and the position relative to some of your existing centers, specifically to some of the Mills assets, can you talk about what you've been able to do with the Mills' leases since you acquired that in terms of building in radius restrictions close to what you have at the Chelsea centers or the Premium centers? Sorry about that.
Speaker 2
Right. Yeah, this is Rick. From the mills' perspective, what we have been able to do is really demonstrate the synergy between our platforms because the mills, their motto and their advertising campaign is, "Mills means more." We've been able to take the outlet tenants that we have relationships with in the Premium platform and bring them into the mill. We've also taken a number of the full-price tenants that we have relationships with in the mall business and bring them into the mills. As a result, you've seen very good growth in the mills, and you have seen substantial increases in the anchors and the market share in those properties.
This month, the announcement of Macy's building a full-line store at Gurnee on a pad that used to be occupied by Circuit City is the best demonstration of how we're able to really bring all of those varying tenants under the mills' outlet. In terms of the radiuses, they are less relevant in that property type.
Speaker 4
I would say this, that we're not overly worried that any of these new, if I caught your question right, we're not overly worried about any of the new outlets being developed that's going to have a material impact on any of our existing mills. I don't, you know, I'm not worried about that at all.
Speaker 3
Okay. Given the success that the outlets have had, there's also been a bit of a move to move the outlets closer into major metro areas and closer to full-price retail. Do you see the retailers pushing back on that given the success that they've had at the outlet centers?
Speaker 4
I think that's harder to do than some of the new entrants in the outlet market are talking about. I think that's a major issue for retailers and manufacturers. I don't think they're going to jeopardize their full-price operations. I do think that when you have a tourist market like a Las Vegas or Orlando as an example, you are able to, because you have new customers that come in every week, essentially, you're able to avoid the traditional rules. I think that if a lot of the outlet developers think, or these new entrants, so to speak, think they're going to get retailers and manufacturers to ignore kind of the old rules, we don't see it because frankly, when we look, we've looked at a number of deals, we get pushback on sensitivity all the time. I would say we know the business reasonably well.
Speaker 3
Okay. Just moving to the full price, we've heard anecdotes over the last few months coming out of ICSE that there's been a willingness on the part of retailers to move to stores to mall levels that they wouldn't have thought about six to nine months ago. Can you talk about what you've seen in the Simon portfolio?
Speaker 2
We certainly have been able to take advantage of the better macro environment to expose our retailers to other markets and other properties where they currently don't have stores. To that degree, yes, we are finding that we are able to bring those retailers that maybe in the past would not have looked at a market or a mall that did not have the type of sales potential they thought and try it. Happily, what has happened is that as they have opened these stores, they continue to perform, and that makes them more optimistic and confident about doing additional locations in that type of property.
Speaker 3
Okay. Thanks. Just one last question. The mobile web-based marketing system you've been talking about, can you update us on what progress you've made in there and what direction you think it might go?
Speaker 4
Happy to, without divulging anything overly material. I mean, we are working with Boston Consulting Group and our retailers as we speak in the design of the product, and we're making very good progress. The retailers that we're in discussions with have been very supportive of what we're trying to accomplish. Those discussions are ongoing. We are hopeful that, you know, by 2012, we will have a product that we will be testing in a few malls, and we'll take it from there. The goal is to have something of a test nature in 2012.
Speaker 3
You're more likely to develop something on your own versus purchasing?
Speaker 4
I think you'll see a combination thereof. There's a lot out there that we don't necessarily have to build completely by ourselves. We can partner. It's too early to say. If I had to guess today, it'll be a combination of build and produce ourselves and partner some of the aspects with others.
Speaker 3
What type of capital are we talking about in terms of investment?
Speaker 4
Too early to tell, but we can handle it.
Speaker 3
it. All right. Thanks.
Speaker 4
Thanks.
Speaker 5
Our next question comes from the line of Christy McElroy with UBS. Please proceed with your question.
Speaker 6
Hey, good morning, guys. David, just wanted to follow up on a comment that you made earlier regarding the volatility in the financing markets. Maybe this is more a question for Steve if he's on. Can you comment on what you've seen in terms of financing costs and availability for A assets versus B and C assets in the last month or two, especially in light of some of the recent weakness in the CMBS markets? How is demand for some of these lower quality assets in the market being impacted as a result?
Speaker 2
Christy, thanks for asking me a question. I was feeling lonely.
Speaker 6
That's okay.
Speaker 2
Listen, I think you have a couple of things going on. Number one, there is still overall more and more financial institutions restarting CMBS platforms. I think overall, the trend line is still good. That's what happened the last couple of weeks with spreads gapping out and maybe a couple of deals not getting done quite as well as people had hoped. It's probably just an indication that it is still an evolving, maturing market in its reconstituted phase. With demand for the different quality of properties, I would echo, I think, the comment that Rick or David made earlier. The fact is your better properties grow faster. They're higher productivity. There's clearly more demand to lend against that type of asset, holding all other variables like loan-to-value constant. The fact is we're seeing pretty good demand for product across all the different quality spectrums.
If you've got a good asset and you're reasonable on your loan-to-value, you can get it financed.
Speaker 6
Okay. A question on outlets. Can you provide some additional color on your Toronto project? I know you have zoning approvals, but are there any other hurdles from a construction standpoint that could potentially delay construction? I'm sure you've had discussions with potential tenants about the project, but what's been the retailer feedback so far as it relates to your project versus Tanger's?
Speaker 4
I think the good news is, you know, we've picked a market where an outlet center wants to be built. You know, we're competing hard against the alternative. You know, we've got the site. I think it's going to, it's just going to be a competition. We're hopeful that, you know, we'll get the job done. There's no guarantees that we will. Tenant demand is interested for sure in building an outlet center there. It's a great market. There's no real roadblocks, you know, from an ability other than, you know, we've got to get the leasing. I'm sure, you know, Tanger needs to get the leasing. We feel like we're, you know, doing pretty good, but you know, we still got a ways to go. We are hopeful that 2012 we start construction. I mean, that's our goal. You know, we're moving fast to accomplish that.
Speaker 6
What percentage?
Speaker 4
No guarantees on that.
Speaker 6
What percentage pre-lease is Texas City, given that you're breaking ground next month?
Speaker 4
50-ish, but we're very confident in that deal.
Speaker 6
Okay, Ross is on the line with me as well.
Speaker 4
I'm sorry?
Speaker 6
Oh, I was just going to say Ross is on the line with me as well. I think he has a question.
Speaker 3
Hey, guys. Just a quick question on mills. It looks like you've got about $2 billion gross value of debt maturing over the next 18 months. How does that number relate to where Farallon is in terms of their potential monetization? With that $2 billion of debt, do you guys in the partnership need to pay down any of that to get the refinancing done?
Speaker 4
The vast majority of that is the senior loan and our mez loan. The fact of the matter is there's no issue on refinancing the senior loan. Its coverages are very strong, and the same thing with our mez loan. It's really not, you know, the refinancing of that is really not much of an issue in terms of how we look at it. The exit of Farallon is a different issue, and it's really, I'm not at a point where we can really discuss that. They've been a good partner. They're happy with the investment they've made, and you know, we'll see where it goes. I wouldn't be overly concerned about the ability to refinance the existing debt coming up.
Speaker 3
Is it fair to say we should expect a monetization of your partner's interests at some point sooner rather than later in the next year or so?
Speaker 4
It's certainly in the realm of possibilities. It wouldn't surprise us if that happens. There's obviously a chance that they stay in the partnership and we continue to do what we do, which is grow the NOIs and invest in the properties for the future.
Speaker 3
Can you just remind us, how does the partnership work in terms of that monetization?
Speaker 4
They have a certain ability, subject to a right of first offer on certain assets. They have an ability to sell their interests subject to a right of first refusal. They have some ability to sell certain assets subject to a right of first offer, and if they want to sell their interest, it's subject to a right of first refusal.
Speaker 3
Thank you.
Speaker 4
Thanks.
Speaker 5
Our next question comes from the line of Craig Mailman with Bank of America. Please proceed with your question.
Speaker 3
Thank you. I just wanted to look at the acquisition of the lifestyle center. I'm just wondering if you've seen select opportunities in these high-productive lifestyle centers relative to maybe what is aggressive pricing on A malls. For example, thinking of Plaza Fontenac. When I back out the anchors, I'm talking about 120,000 square foot of inline space. I'm guessing the productivity is comparable as is the occupancy. Yet you're only paying $86 million, and I'm assuming Plaza Fontenac will go for far greater.
Speaker 4
Let me just say, look, we like the deal we did in Albuquerque. It's very well positioned, and consumers love it, retailers love it, and we think there's upside. We saw one, I don't know what it's called, a lifestyle center in Carlsbad that went for, based on how we looked at it and underwrote it, very little growth for a much more aggressive price than anywhere near what we did Albuquerque for. The other asset you mentioned, we just didn't have any interest in it. I let others, whatever happens to that, I have no idea, but we just didn't have an interest for it.
Speaker 3
Is there an opportunity, let's say, on the cost of occupancy at ABQ?
Speaker 4
Yeah.
Speaker 3
Is there expansion?
Speaker 4
Yes, there is potential expansion, and there is, we think, retention as well.
Speaker 3
I guess, one last thing. Are you thinking of breaking up the borders or releasing it as the box that it is?
Speaker 2
We're working on both alternatives. We've already identified three or four potential users that would take the whole box. It's very well positioned in the asset, so there's also the potential to break it up and bring in a couple more restaurants and a couple other small shops.
Speaker 3
Okay, thanks a lot.
Speaker 4
Thank you.
Speaker 5
Our next question comes from the line of Alexander Goldfarb with BMO Capital Markets. Please proceed with your question.
Speaker 3
Yes, hi. Good morning.
Speaker 4
Good morning.
Speaker 3
Just quickly on the AAA, the deficit talks down in Washington. If the rating agencies follow through and actually downgrade the U.S., do you think there's any impact to either Simon or any of the retailers as far as financing, apart from just, you know, a general shift in the market? Are there any contracts that use, you know, treasuries as an underlying reference or any of the factoring that goes on that may be disrupted? Just trying to get a sense of what the impact would be in your world if that should happen.
Speaker 4
I don't think so. I mean, we do lease space to the government. I will tell you that they, I'm known for checking our accounts receivable every month when I get the report, and they are always 30 days delinquent. I'm hopeful that they can rectify that. It is very interesting to note they are always 30 days delinquent. I guess in theory, we'd have some risks that that would not be paid, you know, currently. Beyond that, the numbers are immaterial, frankly. Beyond that, we don't see any real risk. Look, spreads will invariably widen for all of corporate America and for all asset classes. We will be a participant in that. Beyond that, we can't see anything as we studied it that's going to be anything material.
Speaker 3
Okay. Then just the second question is on the discussion of the, you know, taxing, you know, the internet sales and folks like Amazon.com. Is this, I mean, it seems like it's almost something that's Amazon.com-specific because a lot of the retailers have bricks-and-mortar presence, and they also sell their goods online. I'm thinking about like a store like Apple where they've had tremendous success rolling out physical locations. It almost seems like Amazon.com is unique as far as, you know, more retailers would seem to want to have a physical presence, in which case they have to collect sales tax. Just curious if the tenants are indicating that it's more than just Amazon.com, that there's a huge amount of sales that they're losing, or if this is just something more Amazon.com and perhaps books/electronics related.
Speaker 4
There are a number of pure online retailers beyond Amazon.com, like Gilt.com and Blue Nile, just to name a couple. Clearly, Amazon.com is an 800-pound gorilla in this area, but there are other pure online retailers that are taking great advantage of the government subsidy that's occurring.
Speaker 3
Do the retailers have a sense of how much business they lose?
Speaker 4
They are all very focused on it. They are feeling the loss. What we are hearing is a number of customers go to their store, learn all about it, and buy it online because it is 10% savings. It is a real issue. We need a level playing field. There is no reason whatsoever that there should not be. It is not a new tax. It levels the playing field. The fact of the matter is, if a customer wants to buy online over bricks and mortar, and it is a level playing field, then that is the breaks of the game. If they are doing it merely to avoid an 8% or 10% sales or use tax that they are required to pay, but the internet retailer ignores it, that is not fair. That is not what this government should be all about.
Speaker 3
Okay, thank you.
Speaker 4
Thank you.
Speaker 5
Okay. Going on. Our next question comes from the line of Key Benco with Macquarie. Hey, Steve. Good to see you with your question.
Speaker 0
Hi, thanks. Could you give us, remind me, how much NOI you generate from strip centers that you own, and if you can give any update on if there's any momentum in the small shop space?
Speaker 4
Kevin, this is Steve. The strip centers in the aggregate contribute about 3% to 4% of our NOI, which is just, it's in the low hundred million dollar range, like $120 million. Yeah.
Speaker 3
On the small shop side, there's a relatively small amount of space allocated to the specialty stores and the strip centers. That business is primarily driven by the big box leasing, and if you look in our supplemental filings, we are seeing momentum there in adding boxes to that platform.
Speaker 0
It is more on the box space, not on the kind of inline small, under the small shop space then.
Speaker 3
The small shop space is a relatively smaller percentage in that platform than in our other platforms.
Speaker 0
Okay. Turning to your 2012 lease expirations, could you give us some color on what is the vintage on average of what's expiring in 2012? If you can, what was the, on an apples-to-apples basis, the sales productivity, based on that vintage historically?
Speaker 3
When you look in our supplemental filing, if you look in 2012, we have 9.7 million square feet expiring. You can expect that that is going to be a very fair cross-section of our entire portfolio.
Speaker 0
Okay.
Speaker 3
Just as an aside, the rent for that is $32.22. That gives us substantial room to roll those over at higher rent, given our current average rent.
Speaker 0
Right. I mean, that's what I was leaning towards. Could we expect reasonably, you know, in the mid-double-digit range?
Speaker 3
It is hard to project. It's really a function of the specific spaces to roll, but we've been showing good momentum in our spreads over the last few quarters.
Speaker 0
Okay. Last question. How do you guys calculate when you add new anchors to existing malls? How do you calculate your expected yield from that? Is it purely from if they do pay rent, the rent you're expecting, or is there some kind of formula for the increased level of traffic that would generate an overall impact on the mall?
Speaker 3
You know, it's old fashioned. It's called a cash-on-cash return.
Speaker 0
Yeah.
Speaker 3
We do not take into account, you know, the hope and prayer that it'll mean something to this tenant and that tenant.
Speaker 0
Okay, thank you very much.
Speaker 3
Thanks.
Speaker 5
Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.
Speaker 0
Thanks. Just a couple of quick questions. Steve, bad debt expense has continued to stay low. Is that your expectation for the second half of the year, or do you think there's a turnaround in that number back to a more normal $4 to $5 million figure?
Speaker 3
You know, Steve, the answer might be somewhere in between the two. David mentioned there are a couple of tenants, and actually larger tenants, that we have on our watch list and are paying attention to. The overall receivable environment right now is pretty good. Receivables are down really half of what they were a year ago at this time. With the exception of the couple of tenants that we're paying attention to, I think it'll be relatively modest right now.
Speaker 0
Okay. David, I know you said you don't like to characterize the malls. Rick does that, so maybe I'll throw the question to Rick. Could you guys just talk maybe about regional performance and kind of what you're seeing across the country? I realize you don't give the breakdowns of sales and rent growth between the malls and the premium outlets, but is there anything that you're seeing, any noticeable trends between A, B, and C in terms of rent growth, sales growth? Anything by geography would be helpful.
Speaker 3
I'll comment on the geography. All of our regions were stronger with good sales growth, but the strongest regions were the Mountain, which is Vegas, Southwest, Mid-Atlantic, and Florida. Weaker but still growth were the Plains and the Great Lakes. Across all the platforms, those properties that are located in tourist markets have been substantially outperforming even the overall portfolio performance that we have talked about.
Speaker 0
Okay. Lastly, David, do you want to just talk about the dividend? I mean, your payout is exceedingly low. I'm just wondering what your thoughts are to maybe bump it in the second half, or is that something you just kind of wait till the first quarter of next year?
Speaker 3
No. Steve, as you recall, last year we bumped it up materially in the fourth quarter. We're going to follow the same procedure in the fourth quarter. It's going to be based upon our taxable income. Taxable income is certainly, there's a certain amount of volatility with taxable income. Based on what I know today, we're going to have an increase, obviously subject to board approval. I'm sure our board wants to stay a REIT, okay? We're going to have a meaningful, again, subject to board approval and subject to what our taxable income is, but we're going to have a meaningful fourth quarter dividend increase like we did last year. Going forward in 2012, our annual payout now is $3.20. My guess is that as part of that fourth quarter, we'll also set the expectations that, you know, what our annual, our quarterly dividend will be in 2012.
I would anticipate that there'll be a true up in the fourth quarter of 2012, and that will kind of be the normal routine that we'll get in. Obviously, the true up will never, hopefully, ever be down. We'll set a number, and then as taxable income gets more clarity, we'll bump it up to the extent that we're not meeting that.
Speaker 0
Okay. Thanks.
Speaker 3
Thanks.
Speaker 5
Our next question comes from the line of Omotayo Okusanya with Jefferies & Company. Please proceed with your question.
Speaker 4
Hi. Good afternoon, everyone. It's just a couple of questions in regards to price discovery. The Albuquerque, New Mexico asset, could you just give us a sense of what cap rate that was done at? Also, any update on King of Prussia and what could happen on that end?
Speaker 3
We're not going to disclose it with Albuquerque, but I think you'd be pleased. We're not going to disclose what's going on with King of Prussia other than we're having discussions with our partners.
Speaker 4
Okay, next question. A recent article on SNL just talking about you potentially selling some of your shopping centers. Just curious if you had seen that and if you could make any comment?
Speaker 3
We've got a couple of centers on the market, and we're in that process right now. We won't announce anything till we have a deal that's essentially done. At this point, we're still in the discussions and still going through that process.
Speaker 4
Okay. Is there anything thematic about the assets, though? Are they being sold?
Speaker 3
No. I think the only important thing to point out is this. We do this, we've been doing this for several years. We did not do it in 2009 and 2010 because, obviously, the market was in the major restructure recovery mode. This is part of our ongoing process that we tend to look at some assets. We try to sell a couple here and there every year. It's consistent with what we've done in 2008, 2007, 2006. You have all that data out there historically. It's not a dramatic shift, and it's not an overly material deal like what Westfield is trying to do. It's just an ongoing process that we do essentially every year, assuming the market conditions are acceptable to sell assets.
Speaker 4
Okay. Great. Two quick ones for Steve. Steve, could you just say what occupancy costs were as of 2Q?
Speaker 3
Yeah, they were 12.1%.
Speaker 4
Twelve. This is the combined number for the malls and the,
Speaker 3
It is, yep.
Speaker 4
Okay. Understand. Okay. In the quarter, other income, there was an other within other income of about $30.5 million.
Speaker 3
Correct.
Speaker 4
Could you just give us a further breakdown of what's in that number?
Speaker 3
It is a lot of the miscellaneous stuff at the mall, too. It's everything from stroller rentals to sales of lottery tickets and all that. The variance over the last year was, interestingly enough, going back to an acquisition that we did many years ago, we held a key man life insurance for a former director, who passed away. That was a couple million bucks.
Speaker 4
Okay. All right. That explains the delta. Appreciate it. Thank you very much. You got a great quarter.
Speaker 3
Thank you.
Speaker 5
Our next question comes from the line of Jane Sullivan with Cowen & Company. Please proceed with your question.
Speaker 2
Thanks. Just kind of a quick follow-up, Steve, on that other income line item. As you compute SAMHSA NOIs, I understand that other income is in there. Is that right?
Speaker 3
If it's related to the property, it is. For example, this proceeds from this life insurance policy that I mentioned would not be in there.
Speaker 2
Okay. Very good. Second question on same store NOI. Pretty significant increase, quarter over quarter, up from the low twos to 3.5%. I guess keying off of what David had to say about feeling better about the outlook for the balance of the year, I guess that's reflected in your guidance. The 3.5% number this quarter, should we be assuming that that number or better is achievable in the second half?
Speaker 3
As David mentioned, that was off a base that was positive last year as well. If you look at the second half of last year, our comp NOI growth, as I recall, was in the low to mid-2s. We're coming off of higher basis. I think the good news, if you just look at the composition of the 3.5%, 265 basis points of it is minimum rent. I think Rick and David have both mentioned about deal quality continuing to get better. Fifty basis points of it is overage rent. You know, we'll see where sales head, but if sales continue to stay at the percentage increase that we're seeing, it's reasonable to assume that there'd be some pop from the overage rents as well.
Speaker 4
Yeah, okay. Thank you.
Speaker 3
Thanks.
Speaker 5
Our next question comes from the line of Caitlin Burrows with Citi. Please proceed with your question.
Speaker 1
I just had a question. In your press release, it didn't mention anything about the outlet you all announced in May in Phoenix. Is everything still on track for that center to be built?
Speaker 3
Yes, we're still moving on that. Correct.
Speaker 1
Okay. I know at least two of your peers have announced that they're interested in that market. How many outlet centers do you think Phoenix can realistically hold and support?
Speaker 3
If they all get built, somebody will be a loser. How's that?
Speaker 1
That works. Thanks.
Speaker 3
Sure. Thank you.
Speaker 5
Our next question comes from the line of Ben Yang with Keefe, Bruyette & Woods. Please proceed with your question.
Speaker 0
Yeah. Hi. Thanks. David, in past years, you talked about only buying and owning franchise assets, which I thought included a minimum size requirement as well as anchors. Given that you just bought an unanchored center that was only 220,000 square feet, is this possibly a signal that you're maybe more open-minded about what you want to buy and own, maybe in light of the aggressive pricing for high-quality assets that you were talking about earlier?
Speaker 3
It's a very good question. The answer is, a couple. One is we really like this asset, and we've looked at a lot of assets like this. This was an off-market deal, so it wasn't, you know, they didn't hire eSteel to create, you know, projections that the people bid on and believe in and put in a, you know, crazy cap rate. We think we bought it right. You know, we still would prefer the bigger, better deals, but, you know, some of those are, you know, there's not a lot on the market. The numbers are very, very aggressive. I think the other important thing on this is it's a very good market. We're in this market, so we know it. We cover it. As I mentioned to you, you know, this was part of a 1031 exchange. Again, we love the real estate.
We think it's got a lot of potential, but it was kind of an off-market deal. Very good real estate. Fair price for the buyer and the seller. Upside, good market, 1031 exchange. You know, we're very happy to buy it. We have looked at those kind of centers, but even some of those are just being bid up to what we think are very aggressive levels.
Speaker 0
I mean, why would the seller necessarily not market the deal and potentially leave some money on the table, but market to you guys? I mean, it's no secret that, you know, pricing is pretty sloppy overall. I'm just curious how you guys step in and how you present yourself and how you end up winning these types of opportunities.
Speaker 3
Believe it or not, we have had a history of it. We like those deals the best. That's how we got into the outlet business. We bought Chelsea. It was a negotiated deal. I bought the Bartolo. It wasn't an auction. We've done most of our work in that way, and that's the way we prefer it. It doesn't always work out that way, but in this case, our guys did a good job. People know that we're going to close. They know when we have a deal, they know we're going to close, and we're fair on that side of the equation. They have faith that, you know, they just know we're going to get the job done.
Speaker 0
Okay. Great. Just last question. It looks like you meaningfully reduced the small shop tenants that were on month-to-month leases over the past quarter. It looks like it's down about $1.4 million square feet. Is this seasonality, or were you able to convert the bulk of this to permanent tenants?
Speaker 3
permanent tenants.
Speaker 0
Can you give a breakdown just to give a rough idea of how much demand there might be for those temp to perm?
Speaker 3
I've had a couple larger national retailers that we've been going back and forth, and I think the bulk of it has been the fact that we just finalized those leases and extended them or redid them or whatever.
Speaker 0
What was the average spread for those temp to perm conversions?
Speaker 3
We don't have that in front of us.
Speaker 0
It's included in the overall metric?
Speaker 3
Of course. Of course.
Speaker 0
Okay, thank you.
Speaker 3
Thanks.
Speaker 5
Our next question comes from the line of Michael Muller with JPMorgan. Please proceed with your question.
Speaker 6
Yeah. Hi, real quick, David. Just on the dividend again, just want to make sure I heard this correctly. Fourth quarter, dividend increase likely, assuming the board approves it, something similar to a special. Then you would give a sense as to what 2012 could be more on a run rate basis. That was the right way, correct? That's what you said?
Speaker 3
Let me just restate it because it's obviously important. We pay $0.80 a quarter. Times four, that's $3.20. It's very likely that we'll, in the fourth quarter, dividend declaration, which will be part of our third quarter earnings announcement.
Speaker 6
Right.
Speaker 3
In November, payable in November, we'll include a dividend higher than $0.80 that'll be driven by what our taxable income is. Remember, if you don't pay your taxable income, you can't be a REIT. That would not be good. We're going to pay our taxable income out, right? By then, we'll have a good sense of 2012's taxable income, and our quarterly run rate for 2012 will probably be outlined in that context as well. Obviously, it'll be probably higher than $0.80 per quarter, but at that point, we'll have a better sense of that by the end of the year.
Speaker 6
Got it. Okay. Last question, on Opry, looking in the supplemental share cost for the restorations, about $60 million. Is all that out of pocket? Was there insurance proceeds that come into play as well? I mean, how do we think about that?
Speaker 3
We've actually worked very diligently and very hard with our lender. They're providing those funds, and we're suing Aon, who's been our broker for a number of years. Unfortunately, Aon has withheld the additional coverage that we think, we know we're entitled to. That litigation continues.
Speaker 6
Okay. Thank you.
Speaker 3
Thank you.
Speaker 5
Our next question comes from the line of Robert McMillan with Standard & Poor's. Please proceed with your question.
Speaker 6
Hi. Can you give me what % of your 2011 and 2012 leasing activity has been completed?
Speaker 3
2011 is substantially done. 2012, we're probably about 35% completed already.
Speaker 6
How does that compare with normal?
Speaker 3
We're a little ahead of where we've been historically over the last couple of years.
Speaker 6
Can you comment on what retail sectors are doing particularly well, which ones are doing particularly poor, and which ones you're more optimistic about?
Speaker 3
The ones that have shown better growth have been the sporting goods, jewelry, women's better apparel, and accessories. Weaker areas, obviously, books, women's moderate and junior apparel.
Speaker 6
Thank you very much.
Speaker 5
Our next question comes from the line of Rich Moore with RBC. Please proceed with your question.
Speaker 6
Yeah. Hello, guys. I got to say, I liked the acquisition of the best asset in Albuquerque, which is my hometown, as it turns out. I'm curious, beyond the obvious plans for the center itself, across the street, there's kind of a defunct, old regional mall asset.
Speaker 3
Right.
Speaker 6
Across the other street, there's a third-tier General Growth asset that's a regional mall as well. I'm wondering if you're thinking beyond the center itself, maybe crossing one of the two streets in the future?
Speaker 3
I think it's, I think the, it's not, look, we've had no discussions with General Growth, so I'm not, we're not going to speak on that asset. I think you do point out that there's potential on the other one. You know, we're cognizant of that asset and what the potential there is, but certainly not the General Growth asset. I mean, I have no comment on that, essentially.
Speaker 6
Okay. You haven't talked, David, to the private guy that owns the old Winrock Center?
Speaker 3
We're aware of what that could be an interesting situation, but it's too early at this point.
Speaker 6
Okay. That is a great area, obviously, for a broader retail play, it seems like. Second thing is, I'm curious, why did you say you don't like to tier assets? That seems like, from your guys' standpoint, obviously, you understand all the assets. From the analyst investor standpoint, it's usually helpful to see the kinds of stats that you threw out at the beginning of the call on a more defined and formal sort of basis. I'm curious, why not put that tiering together?
Speaker 3
Look, I just believe that, you know, to me, a dollar of cash flow is a dollar of cash flow. I just don't like, essentially, sometimes what it means internally. It's not a big issue. I mean, you know, we do it. We look at it. We'll give you data that we think is important to understand. If we think the market's not appreciating what we've got, then we'll continue to do that. We can cut it a thousand different ways. Our averages obviously mean something because of the size of the company. Our averages are not insignificant because it's over a big broad base. You know how math works, right? It's not just twenty assets that three or four or five could skew the results one way or another. The important thing is, tell us how you'd like it. We'll factor it in.
We've got a business to run internally, and I don't like to characterize assets by tiers because the fact of the matter is I want every asset we've got to be better and the best it can be, or we should let somebody else try and achieve that.
Speaker 6
Okay. Good. I got you. Thank you. Did you guys look at that Niagara Falls outlet center that apparently Macerich has for its number two person?
Speaker 3
You know, we're more focused on Poblano than Buffalo, frankly. We do, you know, and again, I don't really know what the deal is, but there are reports that it's in the, you know, we don't see it necessarily as a top 25 outlet center. We have pretty good familiarity with the outlets, you know, the outlets that are out there. You know, I'm sure they'll do fine with it. Our focus right now is Poblano, not Buffalo.
Speaker 6
Okay. All right. Great. Thanks. The last thing I had, Steve, I wasn't quite sure if you kind of hit on this. You might have. Percentage rents this quarter were up sharply and certainly well above what we had anticipated. What was the reason for that, do you think?
Speaker 3
It could have been your anticipation.
Speaker 6
That could have been the problem. Yes, indeed.
Speaker 3
I think we're just seeing the benefit. Obviously, percentage rents are tough to predict because, you know, you have tenants coming in and out of overage rent all the time. You know, the fact is, if you have the sales growth that we have now seen for the last four or five quarters in a row, it has begun to manifest itself in higher percentage rents. It's as simple as that.
Speaker 6
Okay. What we saw in the second quarter could continue, to some extent, for the foreseeable future.
Speaker 3
Depending on what your assumption is about sales growth going forward. Sure.
Speaker 6
Yeah, I got you. Okay, great. Thank you, guys.
Speaker 3
Thanks, Rich.
Speaker 5
Our final question comes from the line of Caitlin Burrows with Citi. Please proceed with your question.
Speaker 0
Yeah. Good morning, guys. Gotham this side. A couple of questions on the international front. With the recent UK retailers, do you guys feel like you dodged a bullet there?
Speaker 3
Look, you know, we know what we're doing. Whether we dodged a bullet or not, I don't know. We offered what we offered on Capital Shopping Centers, a price that we thought we could make work, based upon our industry knowledge and history of past performance. They didn't consider it. I noticed the stock.
Speaker 5
Please stand by. Your conference will resume momentarily. Again, please stand by. Please continue to stand by, and thank you for your patience.
Speaker 0
Okay, I got to go. Hi, I'm Tyson. I'm very old. Can you see me right?
Speaker 5
We can now hear you again. You're now live.
Speaker 3
Perfect. Oh, thank you. Sorry about that. I don't know if you heard the last part of my response.
Speaker 6
Mm-hmm.
Speaker 3
Let me just repeat it. I, in terms of dodging the bullet on CSC.
Speaker 6
Right.
Speaker 3
Let me just say this. We offered a price that they weren't interested in. The stock, obviously, has not gotten that price since we offered it. Our offer was subject to due diligence. We felt comfortable in offering that because we have the history of making acquisitions work. They were not interested. That's really all I can say on that. I don't necessarily think we dodged a bullet. We're very comfortable in underwriting. We understood the UK market. That's why we thought they should have seriously considered our offer subject to due diligence. They chose not to. Had we done the due diligence and felt comfortable with it, we would have made the deal work like we have every other deal.
Speaker 0
Okay. Sounds good. My last question is, what kind of demand are you seeing for international tenant expansion within the U.S.?
Speaker 3
Pretty good. You know, pretty good. If one of the leaders is here, the last two days talking about a lot of business with us, Rick can just, you know, but I'd say it's very positive. Yeah. We're doing a lot of business with H&M, and they're literally here right now. We're doing this with Tessagal, Inglot, Cotton-On, Aritzia, All Saints. Those are all international retailers that are looking to expand their footprint in the U.S., and we're getting the benefit of that.
Speaker 0
Sounds good. Thank you, guys. Good luck with the rest of the year.
Speaker 3
Thank you. Thank you. Thank you.
Speaker 5
This concludes our Q&A session for today's call. I would now like to hand the conference back over to management for closing remarks.
Speaker 3
Thank you, everybody. We are very sorry for the technical glitch. We can blame that on David Simon because he took our, my tech room, for those of you who have visited Indianapolis. I gave him my office, so we're in a new room. We'll obviously work this out. Have a great rest of the summer and take care. Thank you.
Speaker 5
Thank you for attending today's conference. This concludes the presentation. You may now disconnect and have a great day.
