Simon Property Group, Inc.

Greetings. Welcome to the Q3 2021 Simon Property Group, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operators since they're in the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Tom Ward, Senior Vice President, Investor Relations. Thank you. You may begin.

Thank you, Alex, and thank you for joining us this evening. Presenting on today's call is David Simon, Chairman, Chief Executive Officer, and President. Also on the call are Brian McDade, Chief Financial Officer, and Adam Roy, Chief Accounting Officer. Quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8 filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to one hour. For those who would like to participate in the question and answer session, we ask to please respect the request to limit yourself to one question. And please introduce David Simon.

Our cash flow increased to nearly $3 billion a year today, consistent with pre-pandemic levels. We recorded increased leasing volumes occupancy gains, shopper traffic, and retail sales. Demand for our space from a broad spectrum of tenants is strong and growing, and our various platform investments continue to outperform. Third quarter highlights from funds from operation starts with $1.18 billion, or $3.13 per share, included in the Third quarter results were a non-cash after-tax gain of 30 cents per share from the contribution of our interest in the Forever 21 and Brooks Brothers licensing ventures for additional equity ownership in Authentic Brands Group. We now own approximately 11% of ABG and a loss on extinguishment of debt of 8 cents per share from the redemption of the $1.65 billion of senior notes. Our domestic operations had another excellent quarter. Our international operations have improved. However, the quarter was below our budget by roughly $0.03 per share, primarily due to various COVID restrictions. Domestic property NOI increased 24.5%. year over year for the quarter and 8.8% year to date. These growth rates do not include any contribution from the TRG portfolio or lease settlement income. And if you did include TRG and international properties, our portfolio NOI increased 34.3% for the quarter and 18.7% year to date. Occupancy was 92.8%, which was an increase of 100 basis points compared to the second quarter. Average base rent was $53.91. However, that excludes percentage rent, and if you included that, that would add actually another $7 to BMR. For the first nine months, we signed 3,500 leases for 12.8 million square feet. which was nearly three million square feet, or approximately 800 more deals compared to the first nine months of 2019. Mall sales for the third quarter were up 11% compared to third quarter 2019, up 43% year over year. Our sales are over 2019 peak levels. These results are impressive. in particular given lack of international tourism, which we believe will start to increase after the restrictions on international travel are lifted beginning next week. Our company's focus, as you know, is cash flow growth, which will allow us to fund our growth opportunities and increase our dividend. We would encourage the analytic community to focus on our cash flow and its growth because there are many levers that contribute to it beyond what is contained in one or two operating metrics. A simple case in point, our mathematical open and close spread has declined yet our cash flow has significantly increased. Leasing spreads are calculated at a point in time. We have studied the leasing spread metric across the various retail real estate companies and highlight the following. Spreads are significantly impacted by tenant mix. Our leasing spreads include all openings and closing, and it's not a same space measure. However, we believe many other companies use only this subset for their calculation. We do not include variable lease income in our spread calculation. Others do. And there's no consistency in approach. We intend to spend the next several months working to achieve uniformity on this metric, much like we did for sales reporting, although the shopping center sector still does not disclose any sales productivity for its retailers. Let's keep in mind that all of these metrics we need to put in perspective, and we encourage you to take this opportunity to refocus on the importance of cash flow. We opened our fifth premium outlet in Korea, and our tenth in Japan is under construction. Our redevelopment activity is accelerating. Northgate Station opened at Seattle Kraken Community Iceplex, and we have many developments ongoing at Phipps, King of Prussia, Southdale, and many others. Our share of net cost of development projects is now approaching $1 billion. Our retail investment platform are performing very well, including Spark, Penny, and ABG. Spark outperformed their budgets on sales, gross margins, and EBITDA, and we're very pleased with the JCPenney results. The Penny's team has stabilized the business, improved financial results, and we've added private and exclusive national brands to it. Our liquidity position is at 1.5 billion, and there's no outstanding balance on their line of credit, and we're very excited to announce, and in fact, his first day is today, Mark Rosen. He's joined the company as the CEO. He's got a terrific background, great leader, and we look very forward to working with him as he builds on the momentum Penny has established this year. Penny's success is an excellent example of how to better understand our company. We appointed Stanley Sashua as the interim CEO for nearly a year ago, and look at the results. Much like the variety of our investments, no other company in our industry has the capability to put an executive in an interim role and produce these results. This is a testament not only to Stanley, but to the Simon culture. TRG is operating above our underwriting, posted also impressive results for cash flow growth, occupancy gains, and retail sales, which were 16% higher. As you know, we amended and extended our $3.5 billion revolving credit facility. We refinanced a number of mortgages, and our liquidity stands at $8 billion, including 6.9 available on our credit facility, the rest in our share of cash. We paid a dividend of $1.50 in September. That was a 7.1% increase sequentially, and 15.4% year over year. Today we announced our fourth quarter dividend of $1.65 per share in cash, which is an increase of 10% sequentially, and 27% year over year. Dividend will be paid December 31. Now we raised our guidance from 1070 to 1080 last quarter to 1155 to 1165 per share. This is 85% increase on the midpoint. That's 27 to 28% growth compared to 2020 results and basically $2 higher than our initial budget this year. Let me just conclude by saying the following, even though Our stock has posted impressive year-to-date returns. We strongly believe it is still undervalued. Our current multiple of 13 times is approximately three turns lower than our historical average and screens very cheap compared to the REIT sector at 24 times, and in many cases, even close to 30. We have unequivocally proven with our results year to date that we've overcome the arbitrary shutdown of our business due to the pandemic and our cash flow has bounced back dramatically, which many had doubted. We have growth levers beyond our real estate assets that are unique attributes of our company. We have proven to be astute investors We have unique business models and diversity of income streams. Our balance sheet is industry leading and as strong as it's ever been. Our dividend yield is 4.7% and growing, well covered, higher than the S&P yield of 1.9% and the REIT average of 2.9%. And we have the potential to perform very well in an inflationary cycle. We're now ready for questions.