Simon Property Group, Inc.

Greetings and welcome to Simon Property Group first quarter 2022 earnings conference call. At this time, all participants are in a lesson 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 Wadd. Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Peter, and thank you all 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. 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 8K filing. Both the press release and the supplemental information are available on our IR website at investors.signin.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 the request to limit yourself to one question. I'm pleased to introduce David Simon.

I'm pleased to report our first quarter results. First quarter funds from operations were $1.046 billion, or $2.78 per share, prior to a non-cash, unrealized loss of $0.08 from a mark-to-market in fair value of publicly held securities. Our domestic operations had an excellent quarter. Our international operations posted strong results in the quarter despite being negatively impacted from the surging U.S. dollar. We are also very pleased with the results from our other platform investments. We generated $1 billion in free cash flow in the quarter, an increase of 10% compared to the prior year period. Domestic property NOI increased 7.5%. percent year over year for the quarter, and our international properties, as I mentioned, performed well, driving portfolio NOI growth to 8.8 percent. Occupancy at the end of the first quarter was 93.3 percent, an increase of 250 basis points compared to the prior year, and a decrease of only 10 basis points compared to our seasonally high fourth quarter year end of 2021. The number of tenant terminations in the first quarter was the lowest recorded in the last five years and our TRG portfolio occupancy was 93.2% at quarter end. Average base minimum rent increased compared to the fourth quarter and was $54.14. Leasing momentum continued across the portfolio. We signed more than 900 leases for more than three million square feet in the quarter and had a significant number of leases in our pipeline. In fact, at our recent leasing deal committee, we approved the most deals since 2016. And overall, we'll recently have approved approximately 500 new deals representing 2 million square feet. Demand is very strong. And interesting, with the volatility of the world, our portfolio in the U.S. is in great demand from worldwide brands, restaurants, and entertainment operators, as most retailers and tenants view the U.S. as the place to be. Sales momentum continued for our retailers. Mall sales volume for the first quarter were up 19% year over year. We reported retail sales per square foot reached another record in the first quarter at $734 per square foot. For the mall and outlet, combined 43% increase and 669 per square foot for the mills, which was a 50% increase. TRG reported 1,038 per square foot, which was a 52% year-over-year increase. Our occupancy cost is the lowest that we've had in seven years. We are pleased with the results of our other platform investments in the first quarter, including Spark Group and JCPenney. JCPenney's liquidity position is strong at $1.3 billion and it has no borrowings on its line of credit and performed better than planned. I can say the same for Spark, which also performed better than planned in the quarter. Spark also completed the U.S. Reebok transaction and we anticipate great things from this iconic brand. Remember, we expect Reebok to incur operating losses for Spark in 2022 due to the integration aspects of the transaction. Spark financial position, like Penny, is strong with the recent refinancing of its ABL, and it is, in fact, in a net cash positive position. During the quarter, however, our investments in Soho House, and Lifetime Holdings, which both became public companies at the end of last year, were impacted by overall market volatility, driving an $0.08 unrealized non-cash mark-to-market. These are high-quality businesses that fit with our flywheel of unique companies, and we believe these investments will generate value above our bases as they fully reopen and reengage with their customers. On the balance sheet front, we completed very timely a dual tranche US Senior Notes offering that totaled $1.2 billion, including a 10-year fixed rate offering at 2.65% early in the year. We used the net proceeds to pay off amounts outstanding on our credit facility. We also refinanced seven mortgages for a total of 1.1 billion at an average interest rate of 2.92%. And our liquidity stands at $8 billion. Now, today we announced our dividend of $1.70 per share for the second quarter, a year-over-year increase of 21%. The dividend will be payable on June 30. including our dividends, declared today we paid more than $37 billion in dividends over our years as a public company. $37 billion. We also announced today that our board of directors has authorized a new common stock repurchase program for up to $2 billion that will become effective on May 16th. When we look at the valuation of our stock today, at an FFO multiple of approximately 10 times relative to the historical valuations closer to 15 times, and an applied cap rate of around 7% for our real estate assets, we see substantial value in our stock, particularly given our belief and conviction in our future growth opportunities. Our balance sheet is strong, continues to be a significant advantage for us while our cash flow generation provides us with the flexibility to adapt as conditions warrant and as we have proved countless times. We will be thoughtful and opportunistic on the buyback and keep in mind this is in addition to the more than 20% increase in our dividend we announced today. Now, given our outlook for the remainder of the year, we are increasing our full year 2022 comparable FFO guidance from $11.50 to $11.70 per share to $11.60 to $11.75 per share, which compares to our comparable number of $11.44 last year. This is an increase of 10 cents at the bottom end of the range and 5 cents at the top or an 8% increase at the midpoint. This does not include the previously mentioned unrealized loss or gain that may occur the rest of the year on our fair value of investments that I mentioned. And please keep in mind that this guidance increase comes in the face of a strong U.S. dollar and rising interest rates. Just to conclude, I'm pleased with our first quarter results. Tenant demand is excellent and our real estate is a great hedge in inflationary times. Hopefully our operating results and our announced stock buyback authorization today reinforces that we are primarily focused internally and growing our existing platforms organically. And I think that will conclude my comments. Ready for questions?