Simon Property Group, Inc.

Greetings and welcome to the Simon Property Group fourth quarter and full year 2021 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 operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference 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, sir.

Thank you, Hector. Good evening, and thank you 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 Roy, Chief Accounting Officer. 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. 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 that you please respect our request to limit yourself to one question. Please introduce David Simon.

We had a very busy and productive quarter to end a very successful year. We recorded occupancy gains, record retail sales, and demand for our space from a broad spectrum of tenants is robust. And our other platform investments had strong results. We generated nearly $4.5 billion in funds from operation in 21. or $11.94 per share. The 4.5 billion is a record amount for our company for a year. And coming off a difficult year of 2020, these results are a testament to our relentless focus on operations, cost structure, active portfolio management, smart investments coupled with a coherent strategy. Fourth quarter funds from operations were $1.16 billion or $3.09 per share. Included in the fourth quarter results was a net loss of 10 cents per share from a loss on extinguishment of debt and a write-off of pre-development cost, partially offset by an after-tax gain on the sale of equity interest. Our domestic operations had another excellent quarter to conclude the year. Our international operations improved in the quarter. Domestic property NOI increased 22.4% year over year. I'm sorry, for the quarter and 12% for the year, including our share of NOI from TRG and our international properties portfolio. NOI increased 33.6% for the quarter and 22.3% for the year. Mall and outlet occupancy at the end of the fourth quarter was 93.4%. an increase sequentially of 60 basis points and 260 basis points year over year. Average base minimum rent was $53.91. Add $8 to that if you included variable rent. For the year, we signed more than 4,100 leases for a total of more than 15 million square feet. This was the highest amount of leasing activity we have done over the last six years. Retail sales, reported retail sales continued in the fourth quarter. Mall sales for the fourth quarter were up 8% compared to the fourth quarter of 2019 and up 34% year over year. Reported retail sales per square foot reached A record level for 2021 at $713 per foot for our mall and outlet business and $645 for the mills. These results obviously are impressive, particularly given the lack of international tourism for 21. Occupancy costs at the end of 2021 are the lowest they've been in five years at 12.6% year end. We opened two new developments in 2021, one in the UK and a premium outlet in South Korea. Construction continues on our 10th outlet in Japan, opening this fall, and Normandy, France, opening the spring of 23. We completed five significant redevelopments. We added densification components with the opening of two hotels and the completion of an NHL headquarters and practice facility. Progress continues on the densification of Phipps Plaza which will open this fall. We have a significant pipeline of redevelopment projects which will be funded from our internally generated cash flow. Let me turn to our other platformer investments. They produced terrific results in 2021, namely JCPenney, Spark, ABG, and RGG, which is Rue Gilt Group. JCPenney's results were impressive. Their liquidity position is growing. Now 1.6 billion. Company delevered their balance sheet, has no borrowings on their Line of credit, CEO Mark Rosen strengthened his management team with a new CIO and chief digital officer. RGG, including our shop premium outlet marketplace, growth continues and we expect continued investment in 2022 to drive customer acquisition and sales growth. Spark Group will be The operating partner for Reebok in the US. It's a tremendous opportunity for Spark to develop sportswear and footwear expertise. The Reebok integration will require additional investment by Spark as it expands its capability and reach. TRG, Taubman Realty Group, which we own 80%, posted great operating metrics and results. which also beat our underwriting. Reported retail sales was $942 per square foot, a 31% increase year over year. Occupancy also increased 210 basis points for the year. Now turning to the balance sheet, we've been active in the debt markets. We amended and extended our $3.5 billion balance revolving credit facility with lower pricing grid for five years. We issued $2.75 billion of senior notes, 750 million euro notes, completed the refinancing of 25 property mortgages for a total of $3.3 billion at an average interest rate of 3.14%. repaid more than $4 billion in debt, and delevered by $1.5 billion. And with the recent January notes offering, our liquidity stands at $8 billion. Now, just to turn to dividend, we paid out $2.7 billion in cash common stock dividends last year. Today, we announced a dividend of $1.65 cents per share for the quarter, a year over year increase of 27%. This dividend is payable on March 31. Now just to go through guidance for 2022, our FFO guidance is $11.50 to $11.70 per share. When looking at our 22 FFO guidance, is important to note the following items as compared to 21, actual results. Approximately 32 cents per share gain related to the reversal of a deferred tax liability at Clay Pierre. Approximately 32 cents per share in gains related to our investment in authentic brands. These gains were partially offset by approximately 14 cents per share in debt extinguishment charges resulting in an adjusted FFO of $11.44 per share for 21. 21 also included a significant increase in overage and percentage rent compared to prior years and lease settlement income of approximately 10 cents higher than historical average. Our guidance reflects the following assumptions. Domestic property NOI growth of up to 2%. Approximately 15 to 20 cents drag on FFO from additional investments in RGG and SPO, JCPenney, and the Reebok integration cost of SPARC all to fund future growth, the impact of a continued strong US dollar versus the Euro and Yen compared to 21 levels, and continued muted international tourism, no significant acquisition or disposition activity. Finally, I really want to thank the entire Simon team for their tireless work that they continue to do for our retailers, shoppers, and communities every day, and for bouncing back in 21 after a very difficult 2020. Make no mistake about it, 21 was a great year. And I think Tom knows, but I think our FFO guidance was, which was consistent with basically the analytic community around $9.60 per share, and we reported $11.94 per share. So that's a heck of a year. I'm very excited about our plans for 22 and the future growth prospects of our company, and we're ready for any questions.