2023-12-05 18:45:27 ET
Simon Property Group, Inc. (SPG)
Goldman Sachs 2023 US Financial Services Conference
December 5, 2023 3:40 p.m. ET
Company Participants
Brian McDade - Chief Financial Officer
Conference Call Participants
Caitlin Burrows - Goldman Sachs
Presentation
Caitlin Burrows
Thank you, Brian, for joining us, and everyone else. I'm Caitlin Burrows and I cover REITs at Goldman Sachs. As I believe the audience knows, Simon is a REIT engaged in the ownership of premier shopping, dining, entertainment, and mixed-use destinations across the U.S., plus Canada, Mexico, Europe, and Asia.
Question-and-Answer Session
Q - Caitlin Burrows
I have a number of questions prepared, but if there are any audience questions, please raise your hand, so I can try to figure out how many there are, and we'll take it from there. But maybe starting from there, Brian, as the -- I guess, largest retail landlord in the country, what early comments or feedback can you share on how the holiday shopping season is going?
Brian McDade
Well, thank you, Caitlin. I appreciate the opportunity to be here today. I would say that I can report that consistent with what we've heard from other data sources like MasterCard and some of the bank data, we are seeing a relatively good start to the holiday season, specifically in the physical format. Traffic pattern, traffic has been strong through the first part of the month, and so we're cautiously optimistic on the holiday season.
Caitlin Burrows
And I guess, as we think about the leasing environment, that too has been robust for the last several quarters. So, what's the current leasing environment like, the types of tenants you're doing deals with now?
Brian McDade
Sure. We really have not seen any material change in demand for space throughout the year. It's going to be a record leasing year. Through 9/30, we've executed about 15 million square feet of leases. Across the portfolio, about 30% of that are for new deals. As we think about the portfolio, it really spans three different asset classes, which is full-price malls, outlets, and the mills product. We're seeing strong demand across all three of those categories. On the full-price side, we continue to see a strong bid from luxury retailers looking to access our real estate and expand their footprints, both geography and space-wise. There's been a sea change somewhat in that business in the sense of luxury retailers have come out of department stores and are looking at establishing nameplates themselves in a direct-to-consumer business. And so, we're benefiting from that experience across the portfolio.
We're also seeing strong demand from food and beverage and entertainment users in the mall business. And lastly, health and wellness, beauty, and the like continue to be strong categories in the full-price offering. We're also seeing the spillover effect of those categories in our outlet business and our mills business. Food and beverage mills asset class traditionally SKUs and index is more to food and beverage and entertainment. And so, that demand is manifesting itself in that portfolio as well.
And then the outlet portfolio is really robust. We're seeing as luxury retailers are expanding and opening up new stores, they ultimately need additional clearance channels or channels to clear excess inventory, and that's [in orient] (ph) to the benefit of the outlet portfolio. So, really strong demand out there across a variety of tenants, across a variety of price points in asset classes, and quite honestly, diverse geography. There's clearly been a pattern of migration out of mature markets, California, and New York into other markets. And the tenant demand in Texas and Florida and Tennessee continues to be robust as population moves there.
Caitlin Burrows
And so, I guess, as we think about kind of the Simon growth story going forward, one of the stats we're looking at is that domestic property NOI. So, I guess, do you think Simon can sustain a 3% growth rate in domestic property NOI for the next two years, and what are the drivers we should be considering?
Brian McDade
Well, I think the robust environment on the ground will continue to drive NOI growth. Certainly, the demand for space is strong. We continue to convert some of our temporary occupancy into permanent occupancy, which has an economic benefit given the differential in rents. Temporary tenants typically pay a lower per square foot amount, permanent is higher. So, as we convert, we see that driving bottom line growth.
In addition, given the dynamics, as I said, in some of these markets, our ability to drive occupancy continues. We were north of 95% at the end of the third quarter. Traditionally, you see the fourth quarter being our high as an industry. So, we would expect continued acceleration there to some degree, and that will expect -- we expect that to carry into 2024.
So, on the revenue side, we continue to see strong robust growth. Mitigating that somewhat, but still with inside our annual indexation on our common area maintenance, because we obviously are -- we are a fixed cam company. It is expense growth, but we're maintaining that inside of the indexation that we're seeing. And so, generally speaking, I think we're confident that we think 3% is something we could see for a few years, assuming no material change to the macro environment.
Caitlin Burrows
And I guess, maybe you mentioned the temp tenants that you guys have. Can you just give a sense for kind of how large that portion of the portfolio is today, what it could get to, the pace it could change, and how much more those permanent tenants pay?
Brian McDade
Sure. Generally, historically it's about 6% of our business. That increased a touch in COVID, closer to 8%. We probably split the difference and we're sitting around 7% today, but do expect to bring that down to historical averages. So, there's about another 100 basis points to go, plus or minus. Generally, a temporary tenant would pay us about $22 per square foot, and we're signing and renewing leases in the context of about $66 per square foot. So, almost 3x from a bottom line perspective. So, there's material bottom line impact from that conversion.
Caitlin Burrows
And just on the timing front, is that something you expect it would to close the gap in like a year or hard to tell how long that takes?
Brian McDade
Traditionally, retailers will open up their stores ahead of the holiday season. So, I do expect to see the biggest change from that percentage, call it, heading into the third quarter of '24, when you will see some of the temporary come out of the total. But permanent tenants will open ahead of the holiday season as far as that kind of sequencing them. So, you'll probably see it hold relatively flat the first two quarters, and then you'll see a bigger impact as we head into the third and the fourth quarter.
Caitlin Burrows
And so, that was just on the property NOI side. I guess, as we think about normalized earnings growth potential for Simon, I guess there's many moving pieces, but a simplified way to think of it is 10% of the portfolio rolling at maybe 10% spreads with 2% bumps. That gets you to 3%. Then there's an added increase from redevelopment. There is headwinds from debt refinancing though. So, I guess, how do you think about potential earnings growth and if you can reach like 5%, say, consistently or not, or what to consider?
Brian McDade
Sure. If you look back over the last 10 years, the average FFO CAGR has been about 4% a year. And so, given the real --
Caitlin Burrows
A lot has happened over the last 10 years.
Brian McDade
Certainly, a lot has happened over the last year. Never mind the last 10 years. But if that's just a proxy, I think as we think about the robustness of on the ground or NOI growth I do think we would expect to see strong earnings growth. We're not giving guidance, but I think when you mix everything together consistent with the past several years, we think we can deliver that consistently.
Caitlin Burrows
And I guess, you mentioned on the NOI topic that it sounded like 3% was a decent growth rate, assuming the macro environment stayed okay. So, I know one thing that we and everybody always ask about or want to know about is the tenant watch list. So, I guess, could you talk about that a little bit, how it's looking today, how it's evolved maybe over the last six or 12 months and the expectation?
Brian McDade
The watch list has really kind of been at its lowest level in the history of the company, call it, the past two to three years. We dealt with a lot of fallout during the COVID period of time. And obviously given the amount of stimulus and sales levels, retailers have really built their financial position over the course of the past couple of years. So, as we sit today, watch list is at its lowest level as it's been in a long time. We're paying attention though, holiday season given higher costs to run businesses, higher labor, higher interest, we do expect some impact, so we're paying attention. The holiday season we'll be telling, and we'll have a better sense of truly where tenants sit, call it in February and March of next year to really take a view. But we don't have any material concerns, but we're paying attention for sure.
Caitlin Burrows
Maybe switching to the balance sheet side, so, higher interest rates have obviously been a focus for probably everybody here for a little while now. Simon has about $4 billion of debt coming due in 2024, $2.5 billion is unsecured, $1.5 billion is secured. So, how are you planning for these maturities in the current higher interest rate environment?
Brian McDade
Sure. We've pre-funded a fair amount of our maturities for 2024. We were active earlier at the beginning of this year, they were active earlier this month, pre-funding. And so, we issued 10 and 30-year money earlier this year at a blended -- earlier this month, excuse me, at a blended cost of about 6.5%. In hindsight, clearly we should have waited given the move in the treasuries, but in hindsight, it's always 2020. We were able to pre-fund the maturities for next year by match funding and investing that the proceeds we raised in cash to offset the carry. So, we've effectively raised the unsecured side of the equation for next year. We sit here today with about including cash that we just raised about close to $11 billion of liquidity relative to next year's maturities.
As you mentioned there's two-and-a-half coming due on these unsecured side $600 million matures in February, $1.9 billion matures between September and October of 2024. As I said, we basically pre-funded that and we'll hold cash until those maturities. We have $1.5 billion of mortgage maturity at our share that matures in 2024, and have already been proactively addressing that. We recently refinanced Woodfield Mall, which was one of those maturities in the CMDS market and we're able to get that done on a 10-year basis for about 6.6%. So, we are actively addressing the maturity profile and maturities that are upcoming, but we do find ourselves with a sizable amount of liquidity to address them and a substantial amount of free cash flow that the business generates on an annual basis that could also be used to delever.
Caitlin Burrows
And I guess, I know, I guess as I mentioned in the beginning, you guys have properties outside of the U.S., so how do you guys think about when it's upcoming maturities? I don't know offhand if all of them are in dollars next year or not, but A, I guess what they actually are in 2024, but also bigger picture access and ability to use foreign denominated debt?
Brian McDade
We are active in multiple markets. We, next year, in those totals, there's only one local mortgage that's maturing in Spain, and which ultimately we expect to refinance with the existing bank. But we are active across the spectrum. One of the other transactions that took place earlier this month was, or last month, excuse me, was we issued an exchangeable bond with the use of our Klépierre shares. We sold the call option against them and brought down the cost of our Euro-denominated financing from what would have been a natural 4.5% to 3.5% by using an asset on our balance sheet. We have still full optionality over those shares. We continue to receive the dividend, and most importantly, which is the most important part and feature of the actual exchangeables, we can always settle the issuance in cash. And so, it was a unique way for us to access Euro-denominated financing, access a new investor base, and create complete optionality over the asset that was sitting on our balance sheet and used it to monetize the call option to bring down the ultimate financing cost.
Caitlin Burrows
Maybe switching gears to external growth, Simon hasn't done any property acquisitions in a little while now? Historically, you were very active and then I guess, go through maybe phases or something. But given the rising cost of debt, are there any potential property acquisitions that seem interesting to you guys?
Brian McDade
Well, look, I think most importantly for us is the discipline to look at acquisitions and make sure that we're not buying things to get bigger, we're buying things to get better. And so, as we look at the existing portfolio and opportunities to deploy capital, the bar of adding additional assets is certainly high. But we've been an active acquirer of assets over the 30 years as a public company. We celebrate the 30th year, 30 years this year. I expect we will again. I expect we will look at asset specific opportunities, not portfolios or companies at this point, but truly targeted opportunities to make the overall franchise better, deploy capital creatively. But it's going to be a function of the markets more than anything. Obviously, the debt markets are a major driver of the acquisition or transactional markets. We've seen some green shoots in the last couple of weeks that hopefully will be a bearer of fruit going forward. But for us, ultimately, it's about looking across the globe, quite candidly and finding those assets that make the overall franchise better, not just simply bigger.
Caitlin Burrows
And I guess, as you think about, you've mentioned before how there's the full price malls, the outlets, and the mills. I know you guys are active in mixed use now. As you think about those potential acquisitions, I know some of the open air shopping center companies, like, they're focused on shopping centers where they can add mixed use. Or others might be focused on something that's been like, under managed by the old owner. I guess, when you're looking to what makes sense for you guys, like where do you think would be your biggest value add?
Brian McDade
Well, I think it's going to be all of those things. Certainly, the operating intensity of our type of assets looks a lot different than other retail assets out there. When you talk about open air or strip centers, that just the true operating nature of those businesses are different than malls and outlets and what have you. So, certainly anything we buy, we would expect that we would be able to drive margin given our scale. So, that's certainly going to be a piece of it. But really it's the brand relationship, it's market specific or geographic specific. Where do we have holes in the portfolio to drive opportunity?
As you think about the opportunity set, at least across the U.S. anyway, it would feel like it probably skews more towards the full price mall side as the opportunity, more so than clearly there's no mills out there to buy and then the outlet business is generally concentrated between two companies at this point. So, while there are certainly private transactions that are out there and they're assets owned by families or what have you, we would think that probably if there is something that would come to fruition, it probably is on the full price of all side.
Caitlin Burrows
Considering the other platform investments, Simon has multiple retailer investments that you could monetize over time. So, I guess thinking about those, how motivated are you to monetize those investments, given the potential creativeness of maybe repurchasing your shares? And I guess even taking a step back, how related are those two things? Do you want to monetize the OPI investments? And then if you did, what would you do with the proceeds?
Brian McDade
Well, look, I think we've been pretty vocal in our past couple of earnings call about our OPI investments, and certainly they add volatility to the P&L of the company, which is inconsistent with the balance of our retail. We've listened to investors, but at the same time, we believe we've created substantial value in those businesses. It just manifests itself differently than a traditional real estate company.
We traditionally, on the retail side, we're picking net income of those businesses up, not necessarily FFO, and so we're burdened by operating costs and depreciation that's coming through those businesses. But as we step back and look at the opportunity set to monetize; we do think there are brands within the stable that are attractive today that will trade at multiples in excess of where we're trading. And so, the natural use of those proceeds to the extent we are successful in any of the monetizations and assuming the stock stays where it is today would be to repurchase stock because it's a creative to shareholders at the end of the day and ultimately it demonstrates the value creation of those investments over time. So, they're not absolutely mutually dependent upon each other, but at least where we sit today we would think that the highest and best use of those types of capital proceeds would be to return it to shareholders via stock buybacks.
Caitlin Burrows
And I guess, is there anything you can say to help us frame the size of potential monetization?
Brian McDade
Well, we've talked, again, on a few of our earnings call, and ultimately, we think the collective is worth around $3.5 billion. Now, obviously, it's subject to market conditions and what have you, but we've looked at it over time and think that's probably a pretty good proxy of what we would expect to recognize over a period of time from a value perspective.
Caitlin Burrows
And just in terms of timing, I know everything's like, based on what the opportunity is. But do you think that's something, like if you think five years from now, are you going to have no OPI investment, or one year, two year? How can we think of timing?
Brian McDade
I'd say in five years, it would be materially reduced. Whether it be no or not is difficult to truly say, but I think it would be materially reduced, certainly over the next five years. We clearly find ourselves in a privileged capital position, so we do not -- there is no absolute need to sell these businesses from that perspective, and so I think you will see us make sure that we transact at something we are comfortable with from a value perspective. So, it's just going to depend on the velocity of transaction markets and kind of what's happening in the world, more so than a definitive time, by this time this will happen. We're opportunistic in these transactions.
Caitlin Burrows
And I guess, then thinking of those potential use of proceeds, so you mentioned stock buybacks, that was assuming the stock stayed where it was in a world where the stock goes up a lot. Would you then be looking to potentially still buy back stock, or you mentioned buy properties, pay down debt, I guess, what would you look to do with that?
Brian McDade
I think, it's going to depend on what the circumstances were at the time, but certainly deleveraging given where interest rates are would be advantageous as well. And so, obviously, we deploy capital back into our assets so it could accelerate development or redevelopment potentially as well. So, I think we have a lot of levers to pull to the extent we find ourselves in the position with capital to be redeployed back into the business or back to shareholders.
Caitlin Burrows
And I guess, maybe we just kind of talked about it, but generally on capital allocation less related to the potential OPI proceeds, but how would you prioritize Simon's use of access cash flow at this point?
Brian McDade
Sure. I would tell you as you look at the company and our financial profile round numbers, we generate about $4.5 billion of FFO. If you look at our most recent dividends, which is $1.90 per share, that annualizes out to $760 or approximately $2.8 billion across the share base. So, in any given year, we have about $1.7 billion of free cash flow after our dividends are reinvested in our business.
Certainly, some of that will go to operating CapEx, but that's roughly $250 to $300. So, let's just say we have a $1.5 billion of free cash flow. I would say that certainly reinvesting in our properties is incredibly important, but we have to do so at a hurdle rate that's getting higher every day. And so, as we go through and re-underwrite our opportunities to deploy capital back into the portfolio, if we're not meeting that return, then we simply can just pause the investment the portfolio, if we're not meeting that return, then we simply can just pause the investment in the property, keep the entitlements and the other administrative aspects of that on the shelf and deploy it as market conditions warrant.
So, certainly, first and foremost, we'll invest in our assets. Secondarily, I mentioned the dividend. We didn't actually raise the dividend in the fourth quarter. At the time, the dividend yield was north of 7% and didn't really think we were getting much credit in the market for a rising dividend. But our dividend will grow with our taxable income and our earnings, so I do expect it will organically grow. But I would tell you today that share buybacks have risen probably above from a priority perspective of simply driving a higher dividend yield. We think that the market will give potentially more value to that than what we've seen out of the dividend side. Last is certainly deleveraging. And given the interest rate environment, our opportunity to continue to improve our unencumbered portfolio and continue to bring down ultimate leverage will have a bottom line impact as well.
Caitlin Burrows
I guess you mentioned it there that one of the potential uses could be on redevelopment where the hurdles are increasing. I guess could you talk about that a little bit and kind of the trend you've seen so far, how you expect it to go forward and like do you think you're going to be able to meet those hurdle rates to execute on more redevelopments given where kind of cost of capital is?
Brian McDade
Yes, if you look at the development spend, it kind of breaks into a couple categories. On the full price side, it's truly the redevelopment of anchor department stores into mixed juice and other uses. That is quite honestly still one of the biggest growth vectors of the company over the next decade is the recapture of that department store; more importantly, the land underneath it and to create a better higher use for that real estate.
Importantly, a lot of that land, our basis is incredibly low given we've owned these assets for a very long period of time. So, anything that's built on top of that land, the more vertical density you can get, the better the yields are going to be. And so, before we start any project, we re-underwrite our assumptions to make sure that ahead of starting, we are penciling out. In the third quarter, we moved forward with a redevelopment project at Brea Mall in California, where we're going to add some residential and some open air green space and a bit of restaurant row.
And so, that project now is heralded at the appropriate rate, so we moved forward. It has a residential component. And so, as I mentioned, given our land basis, it is so low, any vertical, the more vertical we can be on a piece of land, the ultimate better return we're going to get off of that investment. And so, that's just one example of us kind of going through our process, being in a position to deploy that capital, confirming that the returns that we were expecting are still in the market, if not higher than when we're into road and then moving forward.
And so, that is our traditional process of approach across all of our investments, whether it be on the mall side and redevelopment side. As I think about capital deployment on the outlet business, there is certainly opportunities to expand a few of our assets. But we are still building new outlets here in the U.S. We are into construction with Tulsa Premium Outlet and do expect that eventually we're going to start an outlet on the South of LA in Carson, California. So, there is still new outlet development out there as well. Again, returns that are meeting our hurdle rate, which have come up given our cost of capital has increased in the last 12 months.
Caitlin Burrows
And maybe bigger picture as even some of the people here might be less re-dedicated in more financials. But as we think a lot of the talk that we hear about has to go with like the financing and not necessarily for Simon, but maybe that's the way it differentiates you as you look to redevelop existing properties or create new properties like what is the financing environment like? How has it changed? But then like how is Simon differently positioned than basically others out there?
Brian McDade
It's gotten challenged to be candid. Given a lot of redevelopments typically funded from bank balance sheets, regional banks, we've certainly gone through a slowdown in lending across all kind of asset classes from the banking community. What differentiates Simon though is we are funding the vast majority of our development from our free cash flow. So, we do not need to go source new capital in the market in order to move forward on a project. We're using that $1.5 billion of free cash flow a year to invest in our assets, which obviously is producing positive unlevered returns to the tune of 8% to 10% and effectively naturally deleveraging our balance sheet over time. And so, thankfully, given the nature and structure of our balance sheet in our business model, we are not as exposed to the equity external markets for capital deployment as others are in the industry.
If you look at our competitor set, principally our competitors finance themselves with secured mortgage debt and that market is narrowed significantly and the opportunity to take out excess refinancing proceeds from those assets and redeploy that into value added or accretive activities is a challenge from a capacity perspective and a challenge from a cost perspective because construction financing today is SOFR Plus 350 to 400.
Caitlin Burrows
I have some more but I just want to check did anybody here have any questions they wanted to ask? No. Oh yes. Do we have a microphone or should I just repeat it? I can repeat it.
Unidentified Analyst
I have a loud voice.
Brian McDade
We can hear you.
Unidentified Analyst
This will be a little bit of 40,000 -- strategic question, but the average life of a retailer today, do you say it's changed in some dramatic way with the advent of the Internet? Do you find yourself having to manage your malls in a much more active way than you did 20 years ago because there's more destruction of retailers and there are more new retailers coming in and so there's a lot more turnover in that portfolio? Is it better for your business because of that dynamic? Is it worse for your business? Can you please just comment in that regard?
Caitlin Burrows
Just for the people on the line, the question was just about the life cycle of a retailer and has it gotten shorter or changed with the advent of the Internet?
Brian McDade
It's a great question, and I'm not sure it's directly related to the Internet, but clearly the new entrance of retailers is growing by leaps and bounds quite candidly and so as we look at it, it's a great opportunity set for us to continue to diversify our tenant base over time and so certainly our business is active, we are very active managed business and tenants move all the time.
I think the broader the population of tenants that are of interest to the consumer, the better it's going to be for our assets. So, I actually think it's a better or a unique opportunity for us to continue to display what is the up and coming retailers across our portfolio and truly work with them and partner with them on a growth strategy. And so, I would tell you that I think net-net, yes, it's probably more active, but I think ultimately it's a positive for our business because we have the ability to bring fresh and new retailers through much more efficiently.
Caitlin Burrows
Anybody else? Okay. Maybe back to the dividends. So, you mentioned how going forward you do expect to increase it. Our published estimates have that Simon gets back to 2019 FFO in 2025, so we do think that your dividend gets to that same level as it was before which probably just goes to the question of like payout ratio, but how are you thinking of that today versus potentially pre-pandemic?
Brian McDade
Yes, I think we get back to that level. It probably, there's a lag effect here, right, in the sense of you produce the earnings and then you increase the dividend. And so, while I'm hopeful to hit the target you've laid out, it could be a quarter or two different. But yes, I would expect that as we continue to drive the earnings, the fundamental earnings of the company which drives our taxable income, drives the ultimate payout ratio as well. So, I do think we will be back to our historical level or high level sometime here in the next 24 months would be my guess. Again, depending on market conditions and if we were sitting at the world today, I would expect that that would be the pace.
Caitlin Burrows
Maybe on new supply because it's been a headwind for a variety of property types this year, industrial and storage as two examples, but malls and retail generally are in a unique position that there's really no new supply. So, I guess what do you think is the risk of new mall development or other competitive retail supply? And assuming the risk is low, why is that?
Brian McDade
I think it's low. I think the reality is that most of the retail square foot in the U.S. has probably been built. And I think it's actually, we're at the opposite end of what you're talking about for multi and for industrial. I think actually it's a tailwind, driving forth the productivity of the company. What we're actually seeing is a reduction in retail supply. There has been a lot of retail built over the U.S. over the years, and a lot of it has survived on low interest costs. With that decade, maybe some of it should have gone away. We're starting to see it go away. And so, what we're ultimately that we would expect is that noise to the survivors and we will be the biggest beneficiary of that. As retailers look across their portfolios now, they are optimizing their store fleet. The e-commerce business has been proved to be a challenging business. And so, I think what you're now seeing is a holistic approach to your question of people managing their business with the store at the center of it.
The profitability of the store, the customer acquisition cost associated with having stores, the upsell opportunity to the end consumer of having a store is powering the growth of the physical. And then as supply comes out of the market, whether it be because malls get redeveloped into something else or just simply go away altogether, that naturally has a buoying effect on overall Simon as a whole. As you think about development, yields are going to be challenged if you would right now. And as we just discussed, construction financing is not available. And our competitor set needs that source of capital in order to move forward with building anything that they would build. And so, I think all of that noise to the benefit that actually what you're seeing is the supplies coming out of the market and that is actually a tailwind powering Simon into the future.
Caitlin Burrows
Maybe on the transaction side, so transactions of high quality malls haven't happened, I would say in earnest for years now. So, given fundamentals are slowing and other property types, so again, using storage and industrial as two examples that are slowing from a very high level, but have you seen any increased institutional interest in malls? Do you expect to see either in your own properties or at other mall or retail properties? Generally, some transactions occur kind of a pickup in retail because others are slowing. I guess either in full or joint ventures, like what's your thought there?
Brian McDade
Sure, certainly very open and active dialog with capital providers on the SPG side. We have a big institutional business. We have a lot of institutional investors in our existing asset base. I don't think and you have a multi-part question here, but from the SPG perspective, I don't envision a scenario where we're going to do new joint ventures with institutional capital. We don't need the capital, quite honestly and our existing asset base. As I mentioned, we own a lot of the assets for long periods of time and so introducing a capital partner sounds it makes sense until you realize the tax ramifications of doing so relative to basis. So, on the SPG side, I don't expect anything material for our existing portfolio certainly for active on an acquisition front there is opportunity to bring in capital alongside us.
And the most unique aspect of our business is the operational intensity and so as institutional capital looks across the investment landscape in our space, who the operator is going to be an important question here and as we look the capital availability, institutional investors traditionally don't fund development redevelopment or acquisitions without some type of debt to support the return profile. So, I think you may get some more activity away from us in that space as debt markets recover, as debt becomes more available and can match with what in the institutional investors looking like looking for from a return perspective assuming they're comfortable with the operator and its ability to operate those types of assets.
Caitlin Burrows
And maybe just the last one going back to the beginning on the consumer, you gave your quick thoughts on how the consumer is doing, I guess considering that you're in the real estate business which is a long-term business, how much does like Holiday 2023 matters to, Simon?
Brian McDade
Look, it's important, it's a data point, it's going to shape these negotiations next year for sure. But we think long-term and ultimately we think over decades not necessarily quarter-to-quarter because the decisions we're making will manifest themselves over decades, so while it is important -- while it's an important data point, it's going to frame our conversations early next year. It's not the end all be all and our tenant base quite honestly is thinking long-term as well by large and so ultimately we work through the incremental noise. It could have a touch of impact in our conversations next year if you do have a poor holiday season. But generally speaking ourselves and our tenant community are making long-term decisions and I think that won't change materially even if you had a slower holiday season given the consumer.
Caitlin Burrows
Okay, well with that, I think we're going to stop. Thanks everybody for joining us.
Brian McDade
Thank you for your interest.
For further details see:
Simon Property Group, Inc. (SPG) Goldman Sachs 2023 US Financial Services Conference (Transcript)