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Simon Property Group (NYSE:SPG)
Q2 2020 Earnings Call
Aug 10, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Simon Property Group, Inc. earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr.

Tom Ward, senior vice president, investor relations. Please go ahead.

Tom Ward -- Senior Vice President, Investor Relations

Thank you, Robert, and thank you all for joining us today. 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. Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to a variety of risks, uncertainties, and other factors.

We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com.

[Operator instructions] For our prepared remarks, I'm pleased to introduce David Simon.

David Simon -- Chairman, Chief Executive Officer, and President

Good evening, and thank you for joining us this evening. Before I turn to our second-quarter results, I really just want to again express my gratitude to the entire Simon team for their tireless work they continue to do for our shoppers, communities, and retailers. As we said previously, the safety of our communities in which we serve is our top priority and the team has managed unprecedented circumstances in dealing with the pandemic, certain recent natural disasters, obviously, the unfortunate rioting that also occurred. So we've been dealing with, obviously, a lot.

And frankly, I'm extremely proud, grateful for the dedication and commitment of our team as they've demonstrated during these challenging times from opening to closing to opening to securing our buildings. They've done a heck of a job. So let's go to the numbers. Second-quarter reported funds from operation was $746.5 million or $2.12 per share.

I'm pleased with the resiliency of our portfolio and the solid profitability and positive cash flow we achieved in the second quarter. Keep in mind please, our profitability was achieved despite our U.S. portfolio being closed to the public for nearly 10,500 shopping days during the second quarter. Our domestic and international operations in the quarter were negatively impacted by approximately $1.13 per diluted share primarily due to reduced lease income, ancillary property reven -- and ancillary property revenues as a result of the COVID-19 disruption, partially offset by approximately $0.36 per diluted share from cost reduction initiatives or a net $0.77 per diluted share in the second quarter.

Now let me walk you through -- let me walk you through the components of the year-over-year change in the context of our portfolio NOI. I think the best way to do that is if on Page 17 of our supplement that we issued today. This will help you understand the impact of COVID-19. First of all, total portfolio NOI or net operating income decreased from $1.5 billion in the second quarter last year to approximately $1.2 billion this year, a decrease of 21% or approximately $315 million.

The year-over-year decline for the second quarter was due primarily to the following: approximately $215 million from domestic rent abatements and a higher provision for credit losses. Given the lack of local, state, and federal government support for our industry, we went out of our way to abate rent for thousands of local small businesses and entrepreneurs and restauranteurs and other retailers for the period they were closed. Approximately $145 million from lower sales-based rents, short-term leasing, and Simon brand venture income solely due to the fact that our properties were closed, and approximately $60 million of lower income from our international outlet portfolio, again, due to the fact that they were closed as well during the second quarter. So that's $215 million, $145 million, and $60 million, these decreases were partially offset by approximately $105 million from our cost reduction initiatives.

As a reminder, the variances I just explained do not include the negative impact of $36 million from a straight-line increase deduction as straight-line impact has always been excluded from portfolio NOI. Our operating statistics metrics were as follows: mall and premium outlet occupancy at quarter end was 92.9%, down approximately 110 basis points from the first quarter of 2020. Tenant bankruptcies and lower specialty leasing during the second quarter due to COVID-19 impacted occupancy approximately 60 basis points. Average base minimum rent was $56.02, up 2.8% year over year and our leasing spreads were essentially flat for the trailing 12-month period.

Now regarding collections, we have collected from our U.S. retail portfolio, including some level of rent deferrals, approximately 51% of our contractual billed rent for April and May combined, approximately 69% for June, and approximately 73% for July with only de minimis deferrals. These percents -- percentages are not reduced for any abatement granted during the period that I previously talked about. Now prior to reopening our properties, we implemented a series of robust safety protocols to ensure the highest possible safety and cleanliness standards.

We reopened our U.S. properties starting in early May and our entire portfolio by July 10th as permitted, even with the ever-changing governmental orders that frankly have been in a constant state of flux in 37 states and 150 different counties, all with different protocols. On July 15th, the California governors issued a new restrictive order requiring us to close seven of our properties in the state. So we're all open, except for the seven recent closings in California.

We've been generally encouraged by the shopper response to our reopening, particularly, in certain locations where there's been a steady improvement in traffic with many tenants reporting sales better than their initial expectations. Just a little color on that and the centers that reopened in early May, tenant -- tenants who reported sales reported May was approximately 50% of the previous year volume for the same period, and in June, that increased to more than 80% of prior-year volumes. Tenants continue to reopen and we currently have 91% of all tenants or nearly 23,000 tenants across our U.S. portfolio are open and operating.

Of the remaining tenants that have not opened -- not reopened, more than half of those are closed because of the remaining restrictive governmental orders limiting or prohibiting their operations. Included in that category would be movie theaters, fitness facilities, and in some instances, restaurants. Internationally, all of our designer and international premium outlets are open and operating, 100% of all those stores and our designer outlets are open and operating with shopper traffic and retail sales at approximately 90% of prior-year levels. And we continue to see steady improvement in traffic and sales at our international premium outlets with all retail stores open and sales across that portfolio nearing last year's levels.

With our partner, Siam Piwat, we opened Siam Premium Outlets in Bangkok, our first premium outlet center in Thailand. The center is approximately 90% leased. It's extremely well-located and has an unrivaled premium shopping experience featuring leading brands such as Burberry, Balenciaga, Coach, Ferragamo, and many more. We also completed several redevelopments, including Phase 4 of Gotemba Premium Outlets, which is 100% leased.

Gotemba Premium Outlets is the largest outlet center in Asia ex China and we project annual retail sales to be in excess of $1 billion. Our net investment focus continues to be on those projects nearing completion and our share of the remaining net cash funding required to complete the projects currently under construction is approximately $140 million through 2021. We have a track record on capitalizing on various value-creating opportunities. As you know, Sparc Group, our 50-50 joint venture with Authentic Brands Group, submitted stalking horse bids to acquire Brooks Brothers and Lucky Brand Jeans under Section 363 of the Bankruptcy Code.

Just a few things, I think it's really important to keep in mind on these potential deal. First, Sparc is buying them out of bankruptcy so it is acquiring the inventory at or below cost, and to the extent we buy the intellectual property, we are doing so at attractive values. Second, when Sparc integrates acquisitions in its platform, it reduces the acquired company's overhead significantly. And third, Sparc is able -- because of the bankruptcy code and designation lights, able to reject any leases that do not meet its criteria, and all stores are projected to have a four-wall EBITDA upon assumption of lease.

These investments are expected to generate positive EBITDA soon after their integration into Sparc. We expect any equity investments should be returned within a year after integration of operations. And I -- and as I have mentioned previously, we have created real value already in our investments in Sparc, and of course, ABG and we continue to look forward to other opportunities. Just a few words on the balance sheet, again, active, as you might imagine.

At the end of the quarter, our liquidity was approximately $8.5 billion, consisting of $4.9 billion of available credit facility, borrowing capacity, and $3.6 billion of cash, including our share of joint venture cash. As a reminder, the $8.5 billion of liquidity is net of the $700 million of U.S. commercial paper that's outstanding at quarter end. Subsequent to the quarter end, we paid down a total of to $2.5 billion under our credit facilities.

We also completed the optional redemption at par of $500 million in 2.5% notes and EUR 370 million in 2.38% notes. Both of those notes had maturity dates later this year and I'm also pleased to note that our net debt has not increased by the end of the second quarter through this pandemic period. So important to note and our debt covenants remain well above the required levels with significant headroom. As you know, dividend, we paid -- our second-quarter dividend of $1.30 per share in cash on July 24th.

The board will declare a third-quarter dividend by September 30th and we expect in total for 2020 to pay at least $6 per share in cash for dividends. Conclusion would be simply, again, I want to thank my colleagues for their continued resolve during this tragic set of events for the entire country. Our results are only possible through the ongoing ingenuity, flexibility, and dogged determination of the Simon team. We are proud to play our small part in helping local small businesses, entrepreneurs, and communities work through their way through this recovery by continuing to help them get back so that they can open their business and move forward.

So with that, we're ready for questions.

Questions & Answers:


Operator

[Operator instructions] First question we have on the line will be coming from Caitlin Burrows with Goldman Sachs. Your line is open.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi, good evening, everyone. I guess as of August 9th, you mentioned that 91% of tenants were reopened, but then, July collection was around 73%. So just wondering if you could go through kind of why that amount isn't closer to 91%? Obviously, better than the previous few months, and how quickly you think you could get to a point where rents being paid is more similar to the amount of stores open?

David Simon -- Chairman, Chief Executive Officer, and President

Well, July is at 73%. And why? Because certain tenants haven't paid rent. They have contracts they're obligated to, but certain tenants haven't paid.

Caitlin Burrows -- Goldman Sachs -- Analyst

OK. And I guess, when you think about the amount that hasn't yet paid. I know on the May call you had a good stance of just kind of making that point that those who have leases, unless they're bankrupt you expect them to be paying. So I guess, could you just go through the status of the portion from 2Q that weren't paid, whether it's that -- it sounds like there are minimal amounts of abatements.

Kind of what portion is still under discussion versus rent deferrals you did give or other categories?

David Simon -- Chairman, Chief Executive Officer, and President

Well, we're -- you know, as you might imagine, we're in active negotiations with all of our retailers. We did provide abatement for -- primarily the local businesses and entrepreneurs, restaurateurs during the abatement period. So -- I'm sorry, the closure period and we're finalizing a number of our remaining open issues with our retailers. As again, I mentioned to you that we took a hit of $215 million, which is a combination of abatements and write-offs from bankrupt tenants, etc.

We're not going to go through the percentages of each category, primarily because we're still in active negotiations with tenants regarding April, May and we don't think -- and that information, we believe, is proprietary and it puts us in an awkward position as we finalize our negotiation. We've done over 9,000 amendments. I think we're in very good shape. We're certainly pretty much on -- you know, for not being essential, remember we were deemed, for whatever reason, non-essential retail.

So we lost 10,500 shopping days and we're going through an orderly process. So we've taken a hit that we think is going to show up in Q2 and we're processing the balance. But you know -- you know, hopefully, that will all be behind us here in the near future. We're making very good progress on, as I mentioned, in July, being at over 73%.

But we still got retailers that we need to deal with and we're going through the process in an orderly, thoughtful fashion like we do everything else.

Caitlin Burrows -- Goldman Sachs -- Analyst

OK. Thank you.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Next question will be coming from the line of Alexander Goldfarb with Piper Sandler. Your line is open.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good afternoon out there David. How are you?

David Simon -- Chairman, Chief Executive Officer, and President

You know, out here is going to be resurgence of the Midwest around the corner my friend, OK? So just remember that. Go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

By the way, careful what you look for because all the fleeing New Yorkers will end up moving in next door to you in Carmel. So just be careful what you wish for about the Midwest. So two questions, just following up on Caitlin. I understand your hesitation, but still, if we look at your accounts receivable it definitely jumped from first quarter to second quarter, meaningfully.

So it sounds like a lot -- it sounds like you probably had not that much straight-line rev -- write-off and you think that most of this is money good. So is there a way for one --

David Simon -- Chairman, Chief Executive Officer, and President

But also remember, that's quarter end, a lot of collections -- we made a lot of -- a lot collections in July applying to Q2. And so, you know, just -- that's a moment in time you got to be very careful about drawing any conclusion. But again -- and we're continuing to obviously finish a number of deals. So just don't -- you can't go from that -- from that point to the other point without knowing this is -- every day, it changes.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. But still, it -- can you just give us some flavor even without the numbers, but just like percentages, just some color? You had a bunch of tenants who -- people weren't paying, then people started to pay, your tenants who asked you for, hey, can we make a deal? Some of those were flat out rejected, some you work with, some you, obviously, have brought to court. But can you just give us a flavor, like, on the shopping center side, they've been pretty detailed as far as the percentages of who've asked, a percentage of asked versus who's abated, who'd deferral, and the amounts that they've said no and the amount that are remaining to be negotiated with. So can you at least give some framework around that just to help us understand better?

David Simon -- Chairman, Chief Executive Officer, and President

Well, I -- yeah. I guess, Alex, I have such a different philosophical difference. You know, for me that [Inaudible] -- let -- just take a hypothetical. Let's say, I deferred half of guy's rent and the guy that I didn't defer any rent and I told you I deferred half his rent.

He's going to end up saying, why didn't you do this for me when you did it for other people? So I think this is proprietary information. Obviously, all of this flows through our income statement. It's all GAAP. We did tell you, we took a bunch of abatements and we did -- we did have a negative $36 million straight-line rent variance.

Again, that's not in that 215 because portfolio NOI, as you know, we have always excluded straight line. But in this -- in this case, this is the first quarter we've ever had negative straight line as far as I can tell so it's a pretty big gap. So -- but I don't -- I just don't want to kind of go through that beyond what we've told you. I mean, we told you collections, we told you we did do some level of deferrals, nothing out of the ordinary.

The deferrals in July were de minimis deferrals in June, were less than April and May. So it's all moving in the right direction and the collections are -- we haven't given up on April, May -- as Q2 collections, we expect to -- other than what we abated and wrote off through bankruptcy. We expect to reach a deal on the vast majority and you're right. Some of -- you know, we have one really big receivable out there that is a public record, and obviously, that's out there as a big receivable.

We think that's going to get collected, but that's a big increase in our accounts receivable. So the deferrals and the abatements were clearly under -- not anywhere near the majority of our rental -- rent roll and we still have what I'd say about 28% to 30% of our negotiations still to be done.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. That -- that's helpful. The $28 million still to be done, OK. And then --

David Simon -- Chairman, Chief Executive Officer, and President

Still to be done.

Alexander Goldfarb -- Piper Sandler -- Analyst

Yeah, 28% still to be done. OK. The second question is --

David Simon -- Chairman, Chief Executive Officer, and President

And -- and that's moving down. I'm looking at some numbers here. We got 20% in July that's still under negotiation. But at the end of the day, we expect roughly with abatements and everything else to collect 85%, roughly of Q2 and 93% of July.

And then hopefully, get back to kind of the normal run rate, which has been in the 97%, 98% level.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. The second question is from uh -- I mean, your hallmark apart from cash flow is your balance sheet.

David Simon -- Chairman, Chief Executive Officer, and President

Yeah.

Alexander Goldfarb -- Piper Sandler -- Analyst

And I see -- I see that, you know, a few of the rating agencies, I think, have you guys on negative, but you're doing a lot more with ABG. Obviously, there's a litigation with Taubman. There was the discussion in The Journal today with Amazon, I'll let someone else ask that question. And then, you did continue to pay a dividend, albeit at a reduced level, but still you're paying still with a hefty dividend.

How do the rating agencies view all of these transactions? Have they viewed all of these as favorable or they're comfortable? Or have you had to alter some of your plans based on your desire, which I assume is to maintain your current rating?

David Simon -- Chairman, Chief Executive Officer, and President

Yeah. We're not -- we're not concerned about that. I mean just even with all of the closures, again, 10,000 days, we were cash flow positive this quarter. Now we were, obviously, aggressive in our -- not many folks that I've read have shared their reductions in cost, but we took out $105 million of cost across corporate and the portfolio.

But we're cash flow positive. Our ratios are -- our covenants are well covered. And again, I mean, I see the narrative out there. The amount of equity in both the Lucky and the Brooks Brothers investment is -- I don't want to say de minimis, but it's what would make -- what would you think would be a non-event from our standpoint in terms of what we have to invest, either directly or in Sparc.

What would you say, Alex?

Alexander Goldfarb -- Piper Sandler -- Analyst

In the two, I'm going to guess, maybe it's $100 million, maybe $100 million to $150 million in aggregate between the two.

David Simon -- Chairman, Chief Executive Officer, and President

OK. It's going to be half of that, so --

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. So $75 million between the two?

David Simon -- Chairman, Chief Executive Officer, and President

No, no, no, no. I'd say half of the $100 million, OK?

Alexander Goldfarb -- Piper Sandler -- Analyst

OK.

David Simon -- Chairman, Chief Executive Officer, and President

And that's only -- and that's only in a short period of time until we refinance the whole thing. And again, I mean, we're buying -- remember, when you buy the inventory at cost or below and then you sell it for gross margin, which you're supposed to -- you know, we're not buying it on retail, we're buying it at cost. So if you have a 35%, 40% gross margin, you're going to make 35%, 40% on your -- you know, we're not buying the inventory at a retail cost to the consumer. We're buying it at basically the cost that the retailer has, and then, we sell it.

So there's profit in there. That's why people -- that's why you see ABLs financed left and right because they're buying at cost and there's a gross margin in there. So that's where the market doesn't really get it. But those two investments, either directly or through capital contribution to Sparc will be under $50 million from us.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK.

David Simon -- Chairman, Chief Executive Officer, and President

There's just no way and let me repeat, no way that the rating agencies are going to think twice about it. No way.

Alexander Goldfarb -- Piper Sandler -- Analyst

Right. But it -- but JCPenney would be different.

David Simon -- Chairman, Chief Executive Officer, and President

Well, again, I'm not going to respond to market rumors or speculation. But what's out there in the public is that Penney is likely -- if they are to restructure to do an Opco/Propco and the amount of equity required to do the operating company would -- is going to be a lot less than you would think. So again, you know, it's not overly complicated, but there are facts that just aren't out there that -- if we thought, first of all, Lucky and Brooks Brothers, to the extent that we get this -- and by the way, the one thing we should talk about is the fact that we're saving, in the case of Brooks Brothers, 4,000 jobs, OK? I mean, that's what we should talk about. I mean, we're doing our fair share for trying to keep this world as normal as we can.

But going back, I mean, the amount -- if Brooks Brothers or Lucky or even Sparc or even ABG were material to our financial situation, then, we would disclose it, but it's not material. It's a -- it's a sideline business. And I do see the narrative that -- and I don't buy into this, and Alex, you and I have had this discussion that we're buying into these retailers to pay us rent. We're doing it because we -- for one reason only, we believe in the brand and we think we can make money.

If we didn't believe in the brand and we didn't think we could make money, we wouldn't do it. And it's -- those same people are probably the same people that told Amazon to stay just in the elec -- the book business, OK? So let's just think a little bit-- a little bit. There's just nothing out there that says, you can't make smart investments outside of your core businesses. It's what we do all the time.

And look, Kimco did it with Albertsons, they did a pretty damn good job that you know -- and kudos to them.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you, David.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Next question will be coming from the line of Rich Hill with Morgan Stanley. Your line is open.

Rich Hill -- Morgan Stanley -- Analyst

Hey, David, good afternoon. Hey, I wanted to maybe just chat with you about the return to normal from a cash flow standpoint, obviously, something you focus on a lot. And in many respects, this environment is different than the GFC, given the headwinds facing retail real estate before thinking about the implications of COVID-19. But I'm sure there's some lessons learned from the GFC as well and you were obviously very successful in navigating the GFC.

So I think what a lot of us are trying to understand is, what does that return to normal look like? And you mentioned when speaking to Alex, rent collections in the high 90s relatively soon. But you know, like when does cash flow from the way you look at it, return to where it was last year? How long does it take to get there?

David Simon -- Chairman, Chief Executive Officer, and President

It's a fair question and a good question, but I don't have an answer. Look, I do think without question, the pandemic has, you know, obviously, had a dramatic impact, much greater and I've experienced a lot of volatility in my career. The recession, frankly, doesn't -- it pales in comparison to what we're dealing with. Obviously, the amount of bankruptcies in our sector is tremendous.

And it's more reminiscent to me of what we're dealing with -- of what we dealt with in the early '90s than the Great Recession, and frankly, the early '90s took some time. I mean, it was -- and again, if I say something, you're going to think I'm saying something, but I'm just using that as an example. I mean, in the early '90s, the real estate recession there took, frankly, two, three, four years to overcome. And again, I'm not making that prediction here, but I don't think it's going to be an immediate snapback.

That doesn't mean our company can't do great work, the important player in getting the country back help the local communities and all that stuff. But you know, it's going to take time. There's no doubt about it and this is different. This is not your grandmother's recession.

I mean, when you had GDP drop 30%, whatever, it was 34%, I mean, that's not normal. We're dealing with a lot more bankruptcies and this is going to have more of a duration -- durational impact than what we've experienced probably since the early '90s. Now, the reality is in the early '90s, for those that survived, we're able to prosper after that period of time lapsed. But when you -- in order to really answer that question, it's -- you got to have a medical -- you got to tie it to a medical and I am nowhere -- nowhere in a position to respond to that.

And you got to have a country moving more or less together, and obviously, that's not happening. So I wish I could pinpoint it, but we're not -- we're not -- we're anticipating more of a durational impact here and our planning is being very conservative. And that's why we cut our capex. That's why we cut our overhead.

That's why we're working with our local entrepreneurs and abating rent because, frankly, if we force the issue, they wouldn't open the doors again. And that's why we're trying to be -- you know, if our retailers are willing to work with us, we're willing to work with them. If they're not and we continue to try to work with them and they're still not working with us, then, that's when we have to look at -- look at, unfortunately, look at other options. So I wish I could pinpoint it.

It's a fair question. I think we'll have a better -- I think as every month and quarter goes on, I'll have a better impact. Certainly, it would be our view by the end of this year to like lay out what we see in 2021. I think we're getting closer to that.

I have in my own mind what it will be, but I'm not willing to share with you, not because I don't like you, I do. I just -- I'm just not willing to share it.

Rich Hill -- Morgan Stanley -- Analyst

That -- that's all fair. I would hope for more, but I completely understand that, David. I do want to have one follow-up question, if I may, and you alluded to this. Look, I think there's a lot of media headlines that retail real estate's dying and malls are dying.

I push back on that for a variety of reasons. I think we have too much retail real estate in the United States. So on the other side of this, once retail real estate rationalizes, I would agree with you that we're going to be stronger. So I guess, I would have -- I would ask you, how much do you think has to rationalize, given what you know about COVID-19? Is it 10%, 20%, 40%? I think in the past, you talked about a 20% to 30% number if I go back many years.

How do you think about that? Because I could see the industry post rationalization being a lot stronger footing than it is today.

David Simon -- Chairman, Chief Executive Officer, and President

Well, there's no question there's going to be material -- material rationalization across the whole spectrum and that's all the product categories within our retail sector. So it will be malls, strip centers, outlets, certain outlets, power centers, lifestyle centers. Look, it's hard to -- again, it's hard to put a handle on it. I think -- I think the bigger thing will not be so much, whether it's 20% or 30%, but just -- it's going to happen like now.

It's not -- a lot of the -- a lot of the time when you had a product that was limping along, it could lift for a while. That half life has shortened over the last five, six, seven years. Now, it's like immediately shortened. So you're going to see a rationalization without question and it's going to happen quicker.

But again, I'd be reluctant to give you a real number to hang your hat on. But your number that you mentioned certainly sounds within the realm of possibilities.

Rich Hill -- Morgan Stanley -- Analyst

All right. Thanks, David. That's a [Inaudible]

David Simon -- Chairman, Chief Executive Officer, and President

Sure. Yeah, no worries.

Operator

Next question will be coming from the line of Haendel St. Juste with Mizuho. Your line is open.

Haendel St. Juste -- Mizuho Securities -- Analyst

Hello, out there.

David Simon -- Chairman, Chief Executive Officer, and President

How are you?

Haendel St. Juste -- Mizuho Securities -- Analyst

So uh -- hey, David. So I'm going to ask a question that Alex left off his laundry list of questions earlier about Amazon. So I'm curious, and I know a lot of investors are as well, on your thoughts on the idea of Amazon potentially taking up space at malls and former anchor boxes. Do you think it would work from a practical sense? Would it add a value to or benefit to the center's shoppers or the retailers? And could it even potentially -- how does it even work from an economic perspective?

David Simon -- Chairman, Chief Executive Officer, and President

Well, I'm really not in any position to respond to market rumors or speculation. So that's really with respect to that. I mean, generally, I'd say, the important thing going on that we're seeing is that more and more retailers are distributing their e-commerce orders from their stores and they're also -- so they're fulfilling from their stores and they're also -- you know, the curbside pickup or all sorts of fulfillment options are available. That's a good trend long term for us.

But beyond that, I don't want to get into logistics or any kind of speculation really around Penney and/or Amazon and we should leave it at there.

Haendel St. Juste -- Mizuho Securities -- Analyst

Fair enough. Thank you for that. My second question is really a question on the spreads turning flat here in the quarter, implying there was a meaningful decline in the second quarter. Curious how we should think about the leases signed during the quarter.

Any big deals that are out there having a disproportional impact where these leases generally signed pre- or post-COVID? And how should we think about the near-term trajectory of spreads near term if you extrapolate what we saw in 2Q? Thank you.

David Simon -- Chairman, Chief Executive Officer, and President

Well, it's a good question. Obviously, Q2, we did not do a lot of new business, OK? So we were in mostly triage levels. I mean, I hope everybody appreciates the -- what we had to deal with from a -- you know, again, this pales in comparison. I'm not putting our slice of the world anywhere near the health and welfare of people and the hospitals and all that.

But we were dealing with a very difficult environment. We had to close pretty quickly. We reopened, we had all sorts of different rules across all sorts of different counties. We try to manage that process the best of our abilities.

We've got very little, if any, help on either real estate tax, sales tax. We got -- we -- a lot of -- we had a lot of guidelines. We had to then reinforce our buildings when we had the tragic consequences of the problems at the end of May, which cost us several million dollars, which kind of ended up in our numbers as well in fortifying our stuff. We had to work remotely.

And then, we had to help a lot of our local tenants and a lot of local restauranteurs and so on. So we've been drinking from the fire hose, trying to -- all of these things are unbelievable. Every day is a judgment call. What do you do? Do you do this? Do you do that? You're not going to get perfect.

You're not going to have -- you're going to offend somebody somewhere, sometime, and you just try to be level headed and do it. So with all that said, we went after trying to stabilize our tenant base the best that we could. We tried to reach out. We made a corporate decision to abate all local tenants as much -- you know, again, I'm sure we -- there was a mistake somewhere somehow, but we tried to do that immediately because we knew they were under a lot more pressure than we were, and the new business just wasn't there for Q2.

What I'm told by our new business group is that people are starting to think about new business. Most of that's going to -- if it does surface, most of that will be in 2021. I do think we'll see the benefit of a number of pop-ups in our portfolio, both primarily in the outlet business from a number of great brands because they're sitting on excess merchandise. We think that's a great opportunity.

Hopefully, they'll do great business and they will stay longer. And so, I think the spreads this year are just going to be wacking it enough to like discount them and -- because I don't think we're going to do as much new business. Obviously, renewals are going to be -- we didn't finish all of our 2020 renewals so that's going to be another judgment call about what the right level of rent is. That's going to be a retailer-by-retail decision.

That's going to be, whether they view us as a good partner or not. There'll be a number of cases where we'll work out something acceptable to both parties. There'll be some that we won't and we hope that will be in the minority. And frankly, I'm not going to spend much time worrying about spreads this year.

I just think we're just focused on getting our retailers open, getting traffic back, creating a safe environment for the communities to shop, feel comfortable again, and that kind of math, I'll worry about next year.

Haendel St. Juste -- Mizuho Securities -- Analyst

Thank you for the thoughts. Good luck out there.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Next question will be coming from the line of Mike Mueller with JP Morgan. Your line is open.

Mike Mueller -- J.P. Morgan -- Analyst

I was curious, how much of the second-quarter cost reductions should we see continue in the second half?

David Simon -- Chairman, Chief Executive Officer, and President

It's hard to say. I mean corporately, you know, I must admit, I have not had mutiny yet, but at some point, it's around the corner, OK. So you know, the executives here are still at reduced salaries and reduced comp. That's a tough one for me.

I think about it a lot. So I don't have an answer for that. So there'll be some of that. Obviously, on the operating expenses, not as much because the standards of which -- not that we -- I mean, I hope everyone appreciates that we've always run our properties, again, we're not perfect.

I'm sure there's mistakes, potholes here and there. But we have a new standard that we have to produce that's going to be more expensive. So from a property level, we probably won't see a lot of benefit in -- in forward. It would be great if we got some help.

If you look at our P&L, the one area we did not get any help in is retail real estate tax. So I would hope that these local municipalities would look favorably on what we deliver to the community, what the ad valorem taxes are for retail real estate compared to other forms of real estate and give us a break. We deserve it. We're not treated fairly and we need it.

So, you know, I don't think we'll get it, but that's where we should get it.

Mike Mueller -- J.P. Morgan -- Analyst

Got it. OK. And just as a follow-up, what percentage of ABR is tied to entertainment, dining, and fitness?

David Simon -- Chairman, Chief Executive Officer, and President

That's a good question. I don't know, anybody know off the top of my head? No, I don't know. You mean, in general, not just in --

Mike Mueller -- J.P. Morgan -- Analyst

Yeah, in general.

David Simon -- Chairman, Chief Executive Officer, and President

I'm going to say probably 5%, but Tom will -- Tom will give you the exact number.

Mike Mueller -- J.P. Morgan -- Analyst

Great. Thank you.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Next question will be coming from the line of Ki Bin Kim with Truist. Your line is open.

David Simon -- Chairman, Chief Executive Officer, and President

Yeah, I left it -- the dog it's -- the dog needs to be walked or fed.

Ki Bin Kim -- Truist Securities -- Analyst

So I wanted to go back to the kind of high-level rent collection data that you provided. So it looks like you got about 57% of rents in 2Q. We're not going category-by-category, just high level, what percent of the rent that did you not collect, did you actually write-off or reserve for?

David Simon -- Chairman, Chief Executive Officer, and President

Well, again, I don't want to get too much, but it's in the -- I mean, I -- we're probably in the 15% to 20% range, somewhere in that range, OK? Again, I don't want to give too much on this because all of this will eventually come out, and we're making -- you have to make -- as you know, you have the new rules and all of this will be out with the wash by year-end, but that's kind of where we think. We took a pretty big hit this quarter as you know, I mean with roughly 215 between abatements and write-offs. So that it -- on the portfolio wide, kind of gives you the number for the quarter.

Ki Bin Kim -- Truist Securities -- Analyst

And do you have any data on like what percent of your tenants do you deem as local tenants? And if you're thinking about actually providing loans to those tenants besides those abatements or deferrals?

David Simon -- Chairman, Chief Executive Officer, and President

We don't really give out the local number. We don't -- we don't provide any real loans. If they are, it's -- you know, it's -- maybe there's -- maybe -- you know, historically, we might get notes with a local tenant if they've had a problem with their business, but it's not something that we do upfront. It may be a note because rent has been paid over time, but we don't -- we don't loan -- we rarely loan tenants money.

You know, to the to the point of a kind of a non-event for us.

Ki Bin Kim -- Truist Securities -- Analyst

And would that be the same for your restaurants, too?

David Simon -- Chairman, Chief Executive Officer, and President

Correct.

Ki Bin Kim -- Truist Securities -- Analyst

Because if assuming that rents [Inaudible] it will be hard to bring it back?

David Simon -- Chairman, Chief Executive Officer, and President

We'll do tenant allowance for retailers and restaurants, but we won't loan money. And again, we're pretty good on credit, making sure that the -- if we are -- if we are providing a -- some form of the build-out, one that the retailer is providing the bulk of that and that they have credit stand behind it.

Ki Bin Kim -- Truist Securities -- Analyst

OK. Thank you.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Our next question will be coming from the line of Linda Tsai with Jefferies. Your line is open.

Linda Tsai -- Jefferies -- Analyst

Hi, in terms of buying out the bankrupt retailers, you talked through some hypothetical numbers, buying at or below cost, generating gross margins of 35% to 40%. I would think there's a lot of opportunities that exist. How do you go about picking and choosing?

David Simon -- Chairman, Chief Executive Officer, and President

Great question and it's not like we won a huge portfolio of this. But listen, we -- ABG, Authentic Brands Group, is a fantastic intellectual property group, does business throughout the world, and has a ton of brands. So normally -- and they provide a lot of value on sourcing, marketing, international operations, etc. So normally, when we're doing that, we work with them.

They're very, very good about understanding what -- where there is value in the brand because they know how they can monetize that intellectual property. Obviously, we have a point of view because we know what the consumer likes. So you put the two of us together in the room and that's how we do it. So we're not -- we don't play in -- we rarely play.

I mean, there have been a lot of -- unfortunately, a lot of bankruptcies this year. It's not like we're playing in a lot of them. There's -- and, oh, the other thing I'd point out, Linda, is that we get rumored we're playing and we are not playing. And again, because we don't want to mark -- we don't want the market talk about market rumors and speculation, we don't deny rumors as well.

But we're very selective in what we look at. And again, the brand's got to have value. We got to believe we can -- without trying to hit an inside straight, we better believe we can make it EBITDA positive pretty easily. We don't -- we're not -- we're not into miracle worker here.

We want to be able to do it like what we've done in the past.

Linda Tsai -- Jefferies -- Analyst

Thanks for that. And then, could you discuss how COVID impacted -- how COVID impacts varied across your different property types? Maybe, say, the Mills, premium outlets, or in closed malls as it relates to rent collections, and then, traffic upon reopening?

David Simon -- Chairman, Chief Executive Officer, and President

Well, I would say generally, and again, it depends on location. But I think it's undeniable at this point that it's a little bit location oriented and a lot of that is kind of where we see stability maybe in that market and lack of horizon in COVID cases. In addition to that, I mean, I do think the consumer generally feels a little more comfortable in the outdoor environment. But I would also really underline that a lot of it is just tied to where the cases -- where these cases ebb and flow and that right now is a big determinant.

Linda Tsai -- Jefferies -- Analyst

Did rent collections vary at all across property types?

David Simon -- Chairman, Chief Executive Officer, and President

They have, but since we deal with these retailers basically across the board, it's not like they can pay us in this center and not pay us in that center because one's enclosed and one's open. And when we're talking to them, we're talking to them across the portfolio. So you may see different trends if you only have this kind of product versus that kind of product. But since we're dealing with these retailers across our portfolio, for us, it hasn't -- there's no differential.

You know, for others, it might be a different case.

Linda Tsai -- Jefferies -- Analyst

Thanks. Just one last one. In terms of the 215 abatements and write-offs, how would you expect that number to trend this -- you know, in 3Q and 4Q?

David Simon -- Chairman, Chief Executive Officer, and President

My guess, it'll -- you know, there'll be -- there'll be some -- again, it's a little bit unpredictable. But there'll be some -- I'm sure we'll deal with some more in August, September. We do have, as I mentioned, properties closed again. I hope for all sorts of reasons, primarily because COVID is not rising that would be great for all of us.

But we still -- there's still a risk that we might -- because we're in this -- we're in a dilemma that we're not considered essential, we run the risk. So it's hard to predict. I can't make a prediction on that. I was feeling pretty good in June about finally getting back to work and I feel less good in July and I'm now -- I'm totally confused.

But I am sure we are still going to deal with issues going forward. And so, there'll be -- I'm sure there'll be some level abatements and some collection issues as we move forward for the rest of the year.

Linda Tsai -- Jefferies -- Analyst

Thanks.

Operator

Next question will come in from the line of Nick Yulico with Scotiabank. Your line is open.

Nick Yulico -- Scotiabank -- Analyst

Thank you. I'm just trying to reconcile a couple of numbers here. I know you gave the collection data, which is inclusive of deferrals for April, May, June. They ran between 50% of contractual rent to 70% and in those months yet.

If we look at your cash flow statement in the 10-Q, it's showing that your quarterly cash flow from operations were down over 90%, if you just try and figure out what the quarter number is, not the six-month number. So, I mean, I would -- that would presumably mean a pretty low cash collections number. I know you guys have given the cash collection number, but is there anything more you can explain on this issue as we're looking at these items?

David Simon -- Chairman, Chief Executive Officer, and President

Yeah. I think, frankly, Nick, you're maybe having a hard time with our income statement. We're happy to talk to you offline. But again, we had -- a lot of deals were done at the end of the quarter and processed in early July so we had a lot of collections in July, all the way through July.

You know, the numbers are the numbers. So if there's a particular number, we do have some retailers that haven't paid, period. And we haven't -- we're still under negotiation with a good chunk of our retailers to find out kind of where that stands. So we haven't pressed the bruise on everyone at this point.

We certainly have the option to do so if we can't find a satisfactory deal. And so, I'm not sure what you're referring to, but we're happy to walk through it with you in more detail.

Nick Yulico -- Scotiabank -- Analyst

Yeah. No, I was specifically looking at the cash flow statement, not the income statement, which is showing your cash flow down a lot from a cash from operations standpoint in the second quarter versus a year ago. And so, that's -- I guess, what --

David Simon -- Chairman, Chief Executive Officer, and President

I mean, we did have abatement, OK? And we did have a reduction in our -- I mean, I don't know if you were here earlier, but I laid out how you went from property NOI to kind of where we were. We did lose roughly $300 million in our -- $460 million less our -- less our savings. So I'm sure no one on this call wants me to repeat that, but it's available there for you on the transcript.

Nick Yulico -- Scotiabank -- Analyst

OK. Yeah, I could follow-up online -- offline.

David Simon -- Chairman, Chief Executive Officer, and President

Yeah, yeah. There's no denying, we have reduction in our cash flow from operations. We went through that earlier.

Nick Yulico -- Scotiabank -- Analyst

I guess, what I'm trying to understand is, what exactly we should be -- what's the takeaway from the fact that you're saying that your collections are improving in July versus the second quarter? Is that a function of -- just to be clear, does it mean your cash collections are improving? Or are you just now have more deferral agreement?

David Simon -- Chairman, Chief Executive Officer, and President

Yeah, Nick. Unfortunately, I've said a lot of this. So I don't think you -- maybe you weren't on the earlier call. Yeah, I said our cash collections -- it was clear in the teleconference text that our cash collections in July improved to 73% with de minimis level of deferrals.

I said that earlier, OK?

Operator

Next question will be coming from the line of Derek Johnston with Deutsche Bank. Your line is open.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, David. Hi, everyone. Thank you. What was your process in determining the level of abatements granted? And to us, what is seemingly a kind, shared, pained approach, could you take us through the decision process in granting abatements?

David Simon -- Chairman, Chief Executive Officer, and President

Only if you have time for me to talk about 9,000 lease amendments, OK? So, Derek, a lot goes into that. I mentioned earlier, it's a lot of judgment calls. It's all about the relationship. We went out of our way universally.

Again, I'm sure there'll be some local retailer or restaurateur where something got lost in translation with our field, but we went out of our way universally to abate all local entrepreneurs and businesses. And I'm sure there'll be somebody that said, hey, I didn't get it, but that was the message from top. And then, there were other retailers and it was all a function of understanding their credit, understanding whether there were some potential trades, every situation was different. Again, that's why we don't like to get into the granularity of every deal because I certainly don't want one retailer and say, well, I didn't get that.

Why did you do that versus this? But it's years -- it's being in business almost 60 years and me personally, been doing this for 30 years that ends up saying grace over what's the right way to proceed is with a retailer. And again, let me reinforce. I'm sure we made mistakes. I'm sure we didn't handle everything right.

But we did the best that we could with the set of circumstances that we were dealing with.

Derek Johnston -- Deutsche Bank -- Analyst

OK. I appreciate that. Thanks. And what is the return to development plan at Phipps Plaza? Could you guys quantify the likely timeline or what you need to see happen in order to resume construction? And really, you know, how far is completion kind of pushed off at this point?

David Simon -- Chairman, Chief Executive Officer, and President

Yeah, that's a good question. So on Phipps, we are getting very close to resuming and finishing the hotel. We have a building called the Anchor building, which we're currently evaluating what our options there are. And then, we also have an office building that was part of that that we are in the -- you know, we could sit on that for a while.

We're assessing the -- you know, the good news about that is we're really never going to start that until next year anyway. So we're going to -- we have the chance to kind of give it a few months to see, but I'm expecting the hotel to resume construction here in the near future. And ultimately, the Anchor building probably within the next two to three months. And then, the office building will be market dependent and we'll probably not know that -- we'll probably not know that until early next year.

The timing, that is.

Derek Johnston -- Deutsche Bank -- Analyst

Thank you, David.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Next question will be coming from the line of John Kim with BMO Capital Markets. Your line is open.

John Kim -- BMO Capital Markets -- Analyst

Thank you. Good afternoon. David, you provided the monthly trajectory of both rent collections and deferrals, which have been improving sequentially. I was wondering if you could provide the same details about how rent abatements have been trending over the past few months?

David Simon -- Chairman, Chief Executive Officer, and President

Yeah. I would say way down, and the fact is since we're not closed, the rent abatement was around the period of time we were closed. So you know, now that essentially, other than the California situation, we're not closed. There might be an abatement here or there, but it's generally, I would hope, well past us.

John Kim -- BMO Capital Markets -- Analyst

OK. So this is not a case where the collections were favorably reported because of the abatements going up as well?

David Simon -- Chairman, Chief Executive Officer, and President

Well, OK. Yeah. I said that in my text and I think that's very important to reinforce. So our collections that I quoted you were based on our rental that we set -- that we built.

So if we took abatements, that percent would be dramatically increased, OK? We gave you the rent roll period and the story pre-abatement. So if you took the abatement, our collections would -- as a percent, would be much higher, but we chose not to do it on that basis.

John Kim -- BMO Capital Markets -- Analyst

OK. Thanks for the clarity.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Next question will be coming from the line of Vince Tibone with Green Street Advisors. Your line is open.

Vince Tibone -- Green Street Advisors -- Analyst

Hi, good afternoon. Could you share how --

David Simon -- Chairman, Chief Executive Officer, and President

How are you doing?

Vince Tibone -- Green Street Advisors -- Analyst

Good. Could you share how shopper traffic and tenant sales at your domestic centers was in July compared to the prior year?

David Simon -- Chairman, Chief Executive Officer, and President

We don't get July until basically August 20th. So we don't get that near until the end of month.

Vince Tibone -- Green Street Advisors -- Analyst

Is there any color you can provide on maybe just near-term since reopening? Like is tenant -- is foot traffic down 50%? Is it down 20%? Any ballpark figure you could provide where traffic is domestically.

David Simon -- Chairman, Chief Executive Officer, and President

It's all over the board. And again, I said earlier, Vince, that you know, it -- when we first opened, it's actually what we were -- it was -- traffic was down but conversion was high. And as cases rise, frankly, the consumers' being cautious and traffic is down. I mean, overall, traffic is down.

But it's so location driven and geographic driven that I'd hate to give you a national average. It really is a function of when we opened and whether or not COVID resurfaced markets.

Vince Tibone -- Green Street Advisors -- Analyst

Fair enough. And then just -- is there any more color you could provide on the geographic differences? Like which regions are performing much closer to normal and where is it still a lot slower?

David Simon -- Chairman, Chief Executive Officer, and President

Well, I think when we first opened, look, I think the hardest hit areas continue are in the tourism areas. That is -- and as you know, that's important to our industry in totality. That's been and continues to be the worst performing. Frankly, the locations -- and early when we got open, the consumer was excited to get out of their house.

We saw -- saw basically, the Sun Belt, Southwest, West was not too bad. Outside of the tourist areas, COVID, obviously, increased in those areas and that's had a slowdown for sure. Northeast was late to open. I mean, frankly, we just opened the Northeast, basically at the end of June, and in some cases, New York in July.

So it's -- we really don't have a lot to tell you on that, but traffic has been slowly building ex the tourist areas.

Vince Tibone -- Green Street Advisors -- Analyst

I appreciate that color. One more quick one for me. What percentage of your contractual rent is [Audio gap] second-quarter occupancy --

David Simon -- Chairman, Chief Executive Officer, and President

I'm sorry, you broke up there.

Vince Tibone -- Green Street Advisors -- Analyst

Oh, I'm sorry. I asked, what percentage of your contractual rent is currently in bankruptcy flew to then second-quarter occupancy?

David Simon -- Chairman, Chief Executive Officer, and President

Around four, 4-ish percent that's in bankruptcy that flew through the second quarter.

Vince Tibone -- Green Street Advisors -- Analyst

OK. Thank you.

David Simon -- Chairman, Chief Executive Officer, and President

Sure.

Operator

Next question will be coming from the line of Floris van Dijkum with Compass Point. Your line is open.

Floris van Dijkum -- Compass Point Research Trading LLC -- Analyst

Great. Thanks -- Thanks for taking my question. David, clearly, the retail industry is facing some headwinds right now and you've seen the non-essential retail center being mandated shut. As you look forward, does this change your thinking on how your malls are going to look and also how your outlets are going to look? And in particular, obviously, in Europe and in Asia, what you see in a lot of the malls more than in the U.S.

is grocer anchors. Do you envision more grocers at Simon malls in three years' time? And maybe also comment on your view, particularly, regarding the outlet and maybe reducing the prevalence of apparel and maybe adding other things to your outlet properties?

David Simon -- Chairman, Chief Executive Officer, and President

Well, look, I'm a big believer in the outlets. And if Europe is any indication, the outlets across Europe and in Asia are basically almost back to where they were. And so, I think the big issue on general, the outlets is just we don't have COVID yet stabilized. Obviously, we got some retailer bankruptcies and whatnot that we're going to have to deal with that affect all of retail real estate and affect the outlets as well.

But I don't think there's anything dramatically broken with the outlet business. I think it's just a function of getting people back to where they feel comfortable of getting out of their houses and shopping and they really like the outlet product. So I'm not overly worried about it. Obviously, outlets that are in tourism areas are going to be harder hit or just, whether it's domestic or international tourism just because of lack of general mobility.

I'm hopeful that, yes, that may take some time, but eventually, we will get past that. The duration of that could be some time, could be a year or two, but we'll be past that. You know, listen, the -- and then the -- you know, I -- there won't be a continual change with the mall product. I mean, we do think that's going to present some opportunities.

We probably have too many department stores per big mall. But generally, the real estate is really good and we're going to densify it. I think the idea that what we had was working on over time will be -- will continue. I mean, we may -- we may have to get through this rough patch that the industry is going through.

But this is good real estate that can be redeveloped. Our basis is very, very low. Our basis in the department stores, whether through leases or -- is very low. So I think, there'll be a number of opportunities for us to redevelop that real estate.

So I do think earlier question was, do we have too many malls? Sure. But you know, there'll be -- the malls that ultimately survival will benefit from that contraction. And well, who knows? I mean, there's all sorts of ideas floating around about what the mall can do and how it can service the community and we continue to work on a lot of those things. So I think great real estate will always weigh out.

Weigh -- and I just think we've got to continue to evolve the product, which we are making very good progress on and we'll continue to do so.

Floris van Dijkum -- Compass Point Research Trading LLC -- Analyst

And would that potentially include enhanced or increased grocery exposure in malls, in your view?

David Simon -- Chairman, Chief Executive Officer, and President

I'm hopeful, I hope so. I mean, their real estate requirements are -- obviously, have a lot of constraints to them. So -- but yes, I am hopeful that we can certainly do more business with that category.

Floris van Dijkum -- Compass Point Research Trading LLC -- Analyst

Great. And if I can have a follow-up question maybe regarding your investment in retailers. And clearly, it's you know -- some people seem not -- seem to be somewhat concerned about going outside the -- or off the fairway if you will, in some of your investments, whether it's Brooks Brothers, Lucky Brand, or Forever 21, and obviously, the big one, potentially JCPenney. Presumably, the return expectations for you to do something outside of your core business has got to be higher.

What gets you -- what deals get you most excited? And where do you think you're going to make the highest returns? If you can share some of that with us.

David Simon -- Chairman, Chief Executive Officer, and President

Well, again, on -- we're not going to comment on market rumors, public rumors, etc. We did mention Brooks and Lucky because those are out there in the public through the bankruptcy process. I'd say the very simple thing is, I want to see -- in retail, there is more volatility in retail for sure. So the payback has got to be immediate.

We're hopeful to buy these things at least on the equity. I mean in some cases, 1 times to 2 times EBITDA, get our investment back immediately. And it's got to be really cheap and we're not buying this -- these retailers, both Aero and Forever 21, and if we were awarded the stalking horse in Brooks Brothers, but we'll see. If we win to be -- we'll see what happens.

Lucky's in the same spot. We're buying these in bankruptcy. So I think that we're not buying these at retail. Retailer today would try -- would trade at, who knows, trade at five, maybe 5 times or 6 times EBITDA.

I don't know. I mean, it's all over the place. But we're buying these things that basically -- if we have to put equity in, if we have to, we're going to get our investment back in year one. So then, everything else is on -- and then, if you have a great brand -- listen, we could end up taking Sparc and selling it to us back for $4 billion.

And then, you know, then you'll say, hey, what a good idea. Just give us just time to prove our thesis right. Or at the end of the day, if we screw up, we will have the lost -- a de minimis amount of money given our market cap.

Floris van Dijkum -- Compass Point Research Trading LLC -- Analyst

Thanks, David.

David Simon -- Chairman, Chief Executive Officer, and President

Yeah, no worries.

Operator

Next question will be coming from the line of Michael Bilerman with Citi. Your line is open.

Michael Bilerman -- Citi -- Analyst

Thanks and good evening, David. And hopefully, I can pass you a glass of water after 90 minutes. So I appreciate you sticking around. The first question was around corporate structure.

A number of years ago -- and we sort of had this conversation off and on over many years about REIT versus de-REIT. And you know, I don't know if you saw, one of the prison REITs decided to de-REIT. But just given the evolution of your business and where the puck is going, becoming a little bit more vertically integrated. How do you think about being a REIT versus not being REIT, and obviously, the dividend that comes with that?

David Simon -- Chairman, Chief Executive Officer, and President

Well, no real change. I mean, we study that at least once a year. What the likely prospect of corporate income taxes going up is probably pretty -- pretty high. So obviously, we are committed to paying a very meaningful dividend.

Our yield is scrumptious, so we study it, no real intention. There are certain limitations because of the REIT structure in our retailers, even though we own them through joint ventures that we're working with the legislators, that hopefully, they'll see the benefit of it. I mean, we are literally saving jobs. We save a gazillion job -- not a gazillion, I mean, that's silly.

But we saved a ton of jobs at Forever 21, a thou -- a ton of jobs at Aero. We're going to save a bunch of jobs at Lucky and Brooks. And the reality is the legislators, there are these restrictions on bad income, which we're big enough that doesn't really restrict us. At some point, it could give us a headache.

We're hopeful that government is focused on jobs. We know that regardless of the side of the aisle that you're on and we're hopeful that common sense will prevail. This rule comes -- this rule is from the 1960 REIT legislation. It's irrelevant today.

It's good for the economy if we're in a position with our partners to save jobs. I'm hopeful common sense will prevail.

Michael Bilerman -- Citi -- Analyst

But you don't feel that given the liquidity and just -- you've managed your balance sheet exceptionally well going into this and you have a ton of liquidity. But having that dividend obligation and not having complete clarity of how deep you can go in the vertical integration, it doesn't sound like that's altered your thinking of REIT versus not REIT.

David Simon -- Chairman, Chief Executive Officer, and President

Not -- not at this time.

Michael Bilerman -- Citi -- Analyst

OK.

David Simon -- Chairman, Chief Executive Officer, and President

It's a very good question. We think about it, like I said, once a year. But I do think, Michael, I mean, look, who knows, but tax -- the corporate tax rates could go back up, and obviously, makes that equation -- you know, even in today's world, we're still profitable. We'd still have, even with all the abatements and all of the problems we're dealing with, we're going to have taxable income.

Michael Bilerman -- Citi -- Analyst

Right.

David Simon -- Chairman, Chief Executive Officer, and President

So I mean, we'd be a tax paying entity.

Michael Bilerman -- Citi -- Analyst

Yeah.

David Simon -- Chairman, Chief Executive Officer, and President

And we are hopeful that even though we're completely out of favor as an investment that you know -- and it is what it is, that obviously, there is some attraction to our dividend-paying abilities.

Michael Bilerman -- Citi -- Analyst

Right. And you talked about jobs and saving jobs in terms of the investments you're making in the retailers. Why hasn't there been widespread government support at the federal level, at the state level, at the local level for the retail industry as a whole. Where is it breaking down? Is it the animosity between the landlords and the tenants that just can't get together? Is it the leadership of the government in relations that are -- that the retail industry has? Like, why -- like, what's going on? Like, why hasn't it been done for an industry that's so critical to so many jobs in this country?

David Simon -- Chairman, Chief Executive Officer, and President

Well, I -- just to be clear, we are not looking for federal government help. Our biggest frustration is how we get taxed -- real estate tax, ad valorem tax. Our biggest frustration historically, as you know, was the moratorium on Internet sales taxation. Thankfully, the Supreme Court overruled the Quinn decision -- Quale decision, I forget.

It's been so long ago, I forget the name. But thankfully, we could never get legislators to treat commerce fairly, whether it's bricks or mortar or Internet without -- as you know, unless wherever they have left. So now that that pre -- is more or less than they left it to the states, which I'm fine with. You know, pretty much everything is taxed the way on an equal playing field.

But my biggest frustration is we're just -- we are the golden goose when it comes to real estate tax payments compared to other real estate properties. Whether you look at how we're assessed for value versus warehouse, industrial, that needs to be addressed. But that's a local game. I mean, that's not -- there's nothing nationally that's going to be done.

Obviously, there's been a lot of jurisdictions in the COVID scenario that has treated enclosed malls a lot differently than enclosed retail even when they open, forget essential. By the way, I get essential. I was -- I had no problem with essential and both the federal and the state governments had to do what they had to do. But when they opened back up, a number of states dealt with the enclosed mall a lot differently than other retailers, and we -- we're cleaner, we're at better protocols, we had better air and all this other stuff.

But that was a high level of frustration continues to be the case as we see what's going on in California.

Michael Bilerman -- Citi -- Analyst

Yeah.

David Simon -- Chairman, Chief Executive Officer, and President

So we at -- trying to restructure the CMBS and that, we're not expecting that. I don't -- we don't -- let the documents be the documents. I got no problem with that, but it would be nice that we just got a little bit of the benefit on the real estate tax and treating retailer. There's not a lot of difference, frankly, between a Costco store and a Simon mall when it comes to protocols and cleanliness and air quality.

And by and large, man, let us -- let us compete.

Michael Bilerman -- Citi -- Analyst

Yeah.

David Simon -- Chairman, Chief Executive Officer, and President

You know, we suffered two months, 10,500 days where we could not compete and that's what -- that's just not fair. So I don't want anything other than the ability to compete.

Michael Bilerman -- Citi -- Analyst

Yeah. Last question, if I may, just your reference to the early '90s made me think to -- we took a lot of those companies public, right? It was Chapter 11 or S-11 for the REIT industry and you think about where other retail landlords are today relative to your position where they don't have the balance sheet, they don't have the capital, they don't have as much institutional knowledge, they don't have the operating history and know-how that you have. I guess, they're reacting, does that put competitive pressure on you because they're just trying to survive, right? Where so many others within this vertical are so much more balance sheet challenged and have weaker assets that they may be doing uneconomical transactions. Does that roll over to you or impeded any of your negotiations with tenants?

David Simon -- Chairman, Chief Executive Officer, and President

I don't worry about that one iota. We do -- again, we -- I'm sure we're going to make mistakes. But we -- we have to look at it from our standpoint and a lot less what others are doing. I don't think about that at all.

Michael Bilerman -- Citi -- Analyst

Yeah. OK. Thanks for the time, David.

David Simon -- Chairman, Chief Executive Officer, and President

Yeah. Thank you, Michael. OK. I'm sorry, we wobbled on there, but thanks for your calls and be safe, everyone.

Operator

[Operator signoff]

Duration: 97 minutes

Call participants:

Tom Ward -- Senior Vice President, Investor Relations

David Simon -- Chairman, Chief Executive Officer, and President

Caitlin Burrows -- Goldman Sachs -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Rich Hill -- Morgan Stanley -- Analyst

Haendel St. Juste -- Mizuho Securities -- Analyst

Mike Mueller -- J.P. Morgan -- Analyst

Ki Bin Kim -- Truist Securities -- Analyst

Linda Tsai -- Jefferies -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Floris van Dijkum -- Compass Point Research Trading LLC -- Analyst

Michael Bilerman -- Citi -- Analyst

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