Simon Property Group Inc. Q3 FY2021 Earnings Call

Greetings. Welcome to the Q3 2021 Simon Property Group Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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.

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. 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 one hour. For those who would like to participate in the question-and-answer session, we ask to please respect the request to limit you to one question. 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 non-cash after-tax gains 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 base minimum rent. For the first nine 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 nine 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 lack of international tourism, which we believe will start to increase after the strict restrictions on international travel are lifted beginning next week. Our Company's focus, as you know, is cash flow growth, which should 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 simplification 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 is not a same-space measure. However, we believe many other companies use only this subset for their calculation. We do not include variable lease income in our spread calculations, 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 activities accelerating, and Northgate Station opened at Seattle Kraken Community Iceplex. And we have many developments ongoing at Phipps, King of Prussia, many others. Our share of net cost of development projects is now approaching $1 billion. Our retail investment platforms 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 team has stabilized the business and 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 nearly a year ago and look at the results. Much like the variety of our investments, no other Company nor industry has the capabilities 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 in 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 announce 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 an 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 13 times is approximately 3 turns lower than our historical average and screams very cheap compared to the REIT sector at 24 times, and in many cases, even close to 30. 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 leverage 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 a REIT average of 2.9%, and we have the potential to perform very well in an inflationary cycle. We're now ready for questions.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.

Hey, good morning or good afternoon, guys. Sorry, it's been a long day. Congrats on another really good quarter, David. I wanted to understand a little more about the sequential slowdown in TRG’s domestic portfolio and the international portfolio. Is there anything specific that would drive that? I'm really asking the question in terms of how we should think about forward modeling because I do recognize your guidance.

No, no, no, you're wrong. We were just showing our share compared to the gross number last quarter. Okay. No, it's a good question, but it's just our share.

Okay. Thank you very much for that clarification.

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

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

Yes. Yeah.

Okay. And then maybe we can just talk about how or 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 that it's probably most impacted by our European and international business, as I mentioned earlier.

Great. Thanks. That's it from me. Thanks again and congrats on the good quarter.

Thank you.

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

Great. Thank you. 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 redevelopment?

Yeah. 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 will be several years in the making, but now, 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 quarter-to-quarter, it moves around. Should we look at it on an annual basis, or how should we get a better handle on what you have been able to produce that of your investment in retail?

Well, I think you should think about it as a company that can add value to what we invest in. You should never worry about quarter-over-quarter results; you should look at annual results and compare them historically. Generally speaking, the most important thing is, Craig, we're a different company than most think. We have lots of avenues for growth, and our investments in retailers and other companies have been extremely successful. That will create some quarter-to-quarter variability, but year after year, when you look at our return on investment and the EBITDA from those businesses, it's actually quite outstanding. If you look at the valuations that e-commerce companies are getting for their dot-com businesses, we've captured embedded value that's pretty exciting. So I would never worry about one quarter versus another.

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

Yeah. I mean, I just want to say we're not just your typical mall company; we're more than that. Even if you call us a mall company, I think we've proven we're beyond that, and that's what I'd encourage you to focus on.

Okay. Thank you.

Thank you.

Our next question comes from the line of Steve Sakwa with Evercore ISI, please proceed with your question.

Thanks. Good afternoon, David. It was nice to see the occupancy up 100 basis points sequentially. I am just wondering if you could discuss a little bit about your leasing pipeline and backlog, maybe where 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 there, I was just seeing a tremendous amount of demand. Never been busier. Lots of new retailers, lots of new users. And I think the action is in our portfolio, so we'll have another increase this upcoming quarter, and then we'll increase our occupancy next year. I can't; as you know, we never give specific guidance on that. But I would strongly tell you that demand is very good. And it's across the board. It's the high-end retailers, it's the value-oriented retailers. We're very pleased with what we're seeing.

Great, thanks.

Thank you.

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

Hi. Good evening and nice quarter. I have another question about the retailer part of the business. From a REIT perspective, is there a maximum for how big this business can be as part of your company? And what's the current goal or ultimate plan for your own brands? Is the plan simply to grow the existing brands, acquire more, and sell them? Any thoughts on the plans going forward?

Well, we're obviously very dedicated to being a REIT and staying a REIT. All of these businesses are in a taxable REIT subsidiary, and you can see that this quarter in particular with the large tax expense flowing through our P&L. Because we tend to buy these in partnerships, we really have a runway to continue growing that business. We also have our SPAC, which is a vehicle for growth. I'm optimistic that, based on our track record, we'll continue to find other investments, whether retailers or similarly situated businesses, that will 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 that taxable REIT subsidiaries, or if there is anything one-time included?

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

Okay. Thank you.

Thank you.

Our next question comes from the line of Michael Bilerman with Citi, please proceed with your question.

Hi, great. Kenny McConnell is on with me as well. David, good afternoon. I was wondering if you could go a little deeper into the retailer environment. We know sales are extraordinarily strong as consumers get back out and enjoy buying things again, but retailers are struggling below the sales line. They're having trouble with staffing and keeping product up to date, much of which was launched on ships. How are you thinking about this from two sides: the retailers you own and how they are dealing with these issues while also facing e-commerce challenges, and how you expect retailers to approach store openings next year given the product and staffing concerns and how all of this comes together now that you are increasingly on both sides of the equation and understand these pressure points.

Let me tackle the backlog in getting product to the stores, which affects our tenants and the brands we own. There is variability. Everyone is pretty comfortable, or I should say confident, that they'll get product in for the holiday season, but there are no guarantees, so there will be some variability. We probably would have felt a little better going into the fourth quarter, but we're cautious because we just don't know and it's out of our hands. I gave a shout-out to Stanley because I trained him, but don't forget that. He told me that if he had to go to the Port of LA and unpack boxes to get them into the Penney store, he'd do it, and I said that's a great idea and I would do it too. We're on call to help. If there is variability, I don't know, but generally people are reasonably confident they'll get their product in for Christmas. With respect to employment, this goes well beyond retail. With all the political back and forth, it's not really being discussed. As a CEO worried about growing the overall economy, and because we are correlated to GDP growth, we have to figure out what's causing the lack of employment growth and get to the root of it, because it doesn't seem to be a major focus. To answer your last question, Michael, thankfully I have not seen it impact customers' open-to-buy or their growth. Could it eventually? Sure, but we have not seen it yet. The lack of employment is an issue. Some of our retailers are moving to one shift, increasing salaries, and reducing part-time roles. They may be combating it in a good long-term way by raising pay and getting more loyalty, but the increase in restaurant demand has been phenomenal. That's the area I worry most about, because the employment picture could ultimately slow that demand. I don't know right now, but it's a concern.

And so when you throw all this stuff into the pot, you obviously have a lot more earnings and cash flow drivers at timing today that's ever been in your history; does your disclosure — to be able to get credit and for the Street to value things to the point which you're talking about, your stock being undervalued. Isn't it necessary to break down some of these businesses or to give a little bit more information within supplemental so that people can really identify each of these drivers for more operating businesses to the more rent business because there's like little pieces, you have FFO on investments on a trailing 12-month basis in the credit metrics section, it would be really good to get that on a quarterly basis and all those — are you stepping back? I know you talked about the lease spreads, but is there an opportunity to revamp disclosure, to give the investment community more of that level of detail overall?

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 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, 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 for the huge number and like some of the others out there, and then you'll ascribe a certain value to it. Believe me, we wouldn't rule that out.

You were never in embarking business to begin with. You and I have gone back on that about selling interest in malls. You never wanted to be in the mark. You want to end cash flow and the value.

I mean, I'm a terrible seller as I have admitted. In any event, I think — look, I'm excited about what we're doing. I do think it's still — it's more — 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.

All right. Thanks. If we have time I'll queue up for a quick guidance on later.

Okay.

Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Hey, good afternoon out there, David. I didn't realize that you and Stanley are both longshoremen able to work on the LA Long Beach ports, that's pretty impressive.

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

Well I think if you know that you need that as well.

You can join us, Alex. You can join us.

Hey, if you didn't work, it's pretty tough work unless you can get to the crane operators; those guys make good money. My question for you, and Tom it sounds like we have two questions so I love it, David, in your opening comments you said you were a little behind budget because of some COVID closures you were still experiencing. Despite that, and backing out the ABG intellectual property gain, which is awesome, you didn't handily beat budget. I know, David, you like to run things hard and do all the fun stuff to get your team excited to win. But it's hard to say you were under budget when you beat consensus as much, and in your answers to Michael on store openings, labor, and all different things it doesn't sound like there were any real headwinds. It sounds like you are just rebounding strongly. So what was the below-budget performance related to?

Yes. Alex that was just our international ops. So if I didn't say the word 'international', it's just because I've misread it on the script. I said it. 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?

That's a good question. And it's by country, in a sense. So there is no simple answer that I would say to you. It's very much how COVID is impacting that country. As you know, Europe was 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, LA County almost did, but we'd have to enforce whether or not people had vaccine cards to let them in a 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 feeling more confident about what they are seeing. But I would tell you, Asia is generally no, Japan is pretty tough but they have had a pretty strict shutdown, Korea is doing just fine. I think generally, the U.S. is clearly outperforming other parts of the world from a retail sales standpoint.

And then on your international folks though, are they telling you, 'Yeah, by January 1st, the rest of Asia, Japan, Europe, France, all of 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 2022 is as greatly impacted on the international side?

I'm hopeful 2022 will be a better year for them, just like 2021 was for us. So — but there will be more proactive restrictions I should say, I mean, again, it's country-by-country, but in many spots we'll be more proactive with COVID if COVID spikes.

Okay. And then just a quick

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 for this switchover. 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 whole design, and so forth, Alex. The intent was to be economically neutral.

Okay. Thanks.

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

Yeah. I was wondering, outside of the $0.22 of net 3Q one-time items, can you break down which drove the guidance increase for the balance of the year?

Can you repeat that, Michael?

You had net $0.22 of one-time 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.

Got it. Okay. That was it. Thank you.

Thank you.

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

Hi. Just checking if you could walk through 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 and this quarter it is that share. 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. Could you break out the components for those two NOI pieces, retailer and corporate, and then tie that back to the guidance question that Mike just asked?

Well, one, 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 got a different population, if you would.

I'm just focused on sequential because the numbers did go down; it seems the decline came from two 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 recognize is last quarter, a large amounts of termination income.

Okay. And then just more of a conceptual question on retailing. You guys own different pieces of the retailer landscape you have, the licensing, your traditional retailing. How do you think of the multiples that you would apply for those or the stickiness of the cash flows. And if you could talk about typical margins. Just trying to get a sense of where the EBITDA is coming from between those two pieces and how you think about those two pieces as well.

Whereas the EBITDA coming from the retail?

Between the licensing and traditional retail, yeah, because you have the ABG Investment which is talking about the licensing business.

This is the — well, ABG more or less owns the brands. A lot of brands in the license income. The retailers run the e-commerce and operate stores, so it's essentially 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, from an EBITDA multiples, retailers reward value to the 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 businesses — 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.

Okay. Thank you.

Our next question comes from the line of Vince Tibone with Green Street. Please proceed with your questions.

Hi. Good afternoon. How are same properties operating expenses trending versus 2019? Are you experiencing any pressure from wage inflation or extra cleaning costs given most of the retailers on a fixed CAM basis?

Not currently. I think we'll see how it impacts 2022, but rising costs from our standpoint in 2021 shouldn't be all that material.

Are you much higher than where you were in 2019 or is it kind of adjusted for occupancy changes like margins are more or less the same in your mind?

Well, other than the drop in occupancy, I think in terms of operating, it's probably pretty similar to 2019.

And are you thinking about the way CAM is structured any differently now, given the prospect of higher inflation or — yeah, just curious to get your thoughts there.

Not really. I think the fixed CAM, and obviously it grows in many cases tied to CPI, is just an ease of doing business with the retailer and I don't see that changing.

Got it. Thank you. 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 formerly said anything was at 5% at 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, 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 should double it, more or less. I think, what do we guide to, 4% or something like that? So we should be in that range.

Okay. Appreciate that. Thank you.

Thanks. Way to get it out of me Vince, way to go.

Our next question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your questions.

Hey, thanks guys. Thanks for taking my question. I sometimes wonder whether people are not seeing the forest through the trees here. I mean, your guidance for the year is $0.60 over 2022 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, you talked about the leasing spreads being negative, and again, those are backwards looking because those deals were negotiated 3 to 6 to 12 months ago, obviously when we are in a different environment. There were many articles written about tenants wanting more turnover, sales, and rent-based structures. You talked about that in past quarters about offering some of that, but actually as sales now are in excess of 2019 levels, comfortably in excess, 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.

Thank you Floris. So I would say 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 confusing. Having made my own two 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. We'll see whether it has any impact this year, as I doubt it, but even with overage rent having a very good year this year, we still think that there is another leg up if we get the international tourist that we haven't seen for a couple of two to three years. And now, the strengthened dollar may offset that to some extent but we'll see. On your question about lease structure, some of the folks that wanted to tie their rent too — and we did it in a select few cases, not a lot. But, yes, they may suddenly think maybe they should do another 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 breakpoints — it's 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 2022?

I think we're going to have a very good year in 2022 on that side. Because again, 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 2022, at least from our initial kind of review of that business plan that we just had recently.

Great. I mean, maybe if I ask what — I sort of was asked before, but certainly the backlog of leasing; can you give us any more insight? I know somebody also asked the question about that, but certainly, in terms of what that could mean in terms of occupancy gains in 2022 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 in 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 an — it's a very interesting time. The last several years and the future are 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. Again, we never give an occupancy number, but I would be very disappointed if we didn't have an uptick in occupancy next year.

Thanks, David. That's it for me.

Thank you.

Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.

David, asking my question a bit differently in terms of back of the napkin math here. So FFO per share guidance appears to be take a slowdown in Q4 versus Q3 after adjusting for the non-cash items. Could you help us understand what items might be impacting those expectations?

Versus what you were doing or what we're doing?

You have 291, Q3, if we take out the non-cash items. And then that kind of assumes 270, 280 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 of last year are tied to percent rent deals. How is that compared 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 are just trying to understand if we should expect a sizeable 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 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, 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 where we do maybe — and in COVID, this is — we did a handful with some retailers where we may have lowered the fixed, but we got greater upside on sales. But 90 some odd percent of our leases are 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 that we're coming out of COVID, should we expect to see those — that percent rent number go down and maybe just base rent number start going back up again?

Well, yeah, on rollover. Sure, over time. Again, it's a function of when leases expire.

All right. Okay. Thank you.

Sure.

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

Hi, David. Good evening.

How are you?

So you mentioned earlier the stock being cheap 13 times FFO, I get it. And you point out your long-term average, but I guess the one missing piece 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 and negotiation that was informative about how the lending community is viewing mall values and how would you characterize the market appetite for mall refinancings today? Thanks.

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

It's probably — that's 22 this year, almost $30 billion. The market is open from a refinancing perspective and supportive of high-quality assets.

Look, I think, we're — I'd say where A assets, there's — I mean, I have discussed this before and not to bore you, but there's not a lot of buyers, and sellers realized 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 five cap rate. 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 variant?

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

Well, there's a value with the loan is described to.

Exactly. I mean, look, they look at debt yield.

Debt yield and cash flow cover are the metrics that they're using more and more importantly.

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

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

Okay. Thanks.

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

Thank you. Our final question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.

Hi. Thanks for taking my question.

Sure.

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 an overall improvement in base minimum rent given the moving pieces?

Well, 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, I would recommend you just look at the cash flow of the Company and not overly worry about a metric here or there. It all manifests itself in the cash. In terms of when that will end up in base rent is really, as I said earlier, it's just going to be functional when that particular resource expires. And traditionally, when that does, we're usually pretty effective of trying to garner as much of that overage rent or that percentage rent above the breakpoint 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 bad. So the retailers are always pruning the 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 bigger chain financial calamity.

Thank you.

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 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.