Simon Property Group, Inc.

Greetings. Welcome to the Simon Property Group second quarter 2022 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. Please note, this conference is being recorded. I will now turn the conference over to your host, Tom Ward, Senior Vice President of Investor Relations. You may begin.

Thank you, Kyle, and thank you everyone 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 statement 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.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 the request to limit yourself to one question. I'm pleased to introduce David Simon.

Thank you. Pleased to report our second quarter results. Second quarter funds from operations were $1.1 billion or $2.96 per share prior to a non-cash unrealized loss of 5 cents from a mark to market in fair value of publicly held securities. Let me walk you through the big variances for this quarter compared to Q2 of 2021. Our domestic operations had an excellent quarter and contributed 13 cents of growth driven by higher rental income of nine cents, strong performance in Simon Brand Ventures and short-term leasing of five cents. TRG contributed four cents of growth and they were partially offset by higher operating costs of approximately five cents. Our international operations posted strong results in the quarter and increased 10 cents, lower interest rate or interest expense contributed 3 cents, and these 26 cents of positive contributions were partially offset by the headwind from a strong U.S. dollar of 3 cents and a 19 cent lower contribution from our other platform investments, principally from JCPenney and a couple of brands within Spark. These included costs associated with JCPenney's launch of new brands, the recent Reebok transaction and the integration costs associated with that, and a softening of sales from our value-oriented brands due to inflationary pressures on that consumer. We generated $1.2 billion in free cash flow in the quarter, which was $200 million higher than the first quarter of this year, and we had generated $2.2 billion for the first six months of the year. Domestic property NOI increased 3.6% year-over-year for the quarter and 5.6% for the first half of the year. Portfolio NOI, which includes our international properties, grew 4.6% for the quarter and 6.7% for the first six months. Occupancy at the end of the second quarter was 93.9, an increase of 210 basis points, and TRG was at 93.4%. The number of tenant terminations this year has been at record low levels. Average based rent increased average base minimum rent increase for the third quarter in a row, and was at $54.58. Leasing momentum accelerated across our portfolio. We signed nearly 1,300 leases for more than four million square feet in a quarter, have signed over 2,200 leases for more than seven million square feet through the first half of the year, and we have a significant number of leases In our pipeline, nearly 40% of our total leasing activity in the first six months of the year has been new deal volume. This is up approximately 25% from last year. Retail sales continued. Mall sales volumes for the second quarter were up 7%. Our reported retailer sales per square foot reached another record. in the second quarter at $746 per square foot for the malls and the outlets combined, which was an increase of 26%. $674 for the mills, a 29% increase. TRG was at $1,068 per square foot, a 35% increase. We began our National Outlet Shopping Day, which was very successful for shoppers and participating retailers, offering a timely, first-of-its-kind power shopping experience. More than 3 million shoppers visited our premium outlets and mills over the shopping weekend. Feedback following the event has been tremendous from both our retailers and consumers. We're already planning next year's event which we expect to be bigger so please stay tuned on on that our occupancy costs at the end of the quarter are the lowest they've been in seven years 12.1 percent of q2 of 2022. now our other platformer investments let's talk about it we were pleased with the results of our um of our investments in the platform for the second quarter They contributed approximately 21 cents in FFO, even though we were down from last year's terrific results, primarily, as I mentioned, continued investment and the inflationary pressures that have developed. Based on our distributions, based upon our cash distributions received, we have no cash equity left. investment in Spark and JCPenney. And in fact, we have parlayed our Spark investment into our investment in ABG that is now worth over $1 billion. There will be a little more volatility from quarter to quarter when it comes to Spark and JCPenney, but please keep in mind this in the proper perspective. It's all upside from here. During the quarter, we also, as I mentioned, had our mark on our SOHO and lifetime holdings of five cents. A reminder on that, it's a non-cash mark, and we would expect that those companies would bounce back. We completed the refinancing of 14 property mortgages during the first half of the year. for a total of $1.6 billion and an average interest rate of 3.75%. We reduced our share of total indebtedness by more than 650 million. And once again, our balance sheet's strong. We have $8.5 billion of liquidity, $8.5 billion. Today, we announced our dividend of $1.75 per share for the third quarter, a year-over-year increase of 17%. This will be payable at the end of the third quarter, September 30th. During the quarter, we repurchased 1.4 million shares of our common stock for $144 million. And let me point out, while other companies in our sector are paying little or no dividends, and issuing equity, we are repeatedly raising our dividend and buying our stock back. We have now returned more than $37 billion of capital to our shareholders since we've been public, $37 billion. Given our current view of the remainder of the year, we are increasing our full year 2022 comparable FFO guidance from $11.60 to $11.75 per share to the new range of $11.70 to $11.77 per share, which compares to a comparable number of last year of $11.44 cents per share. This is an increase of 10 cents at the bottom end of the range and 6 cents at the midpoint of the range. The guidance comes in the face, obviously, of a strong U.S. dollar, rising interest rates, and the inflationary pressures that are out there in the marketplace. So let me conclude. I'm pleased with our second quarter results. Our business is strong. The higher income consumer is in good shape. Brick and mortar stores are where the shoppers want to be. Outpacing e-commerce across the world and the broad retail spectrum. Demand for our space is extremely strong. Worldwide retailers need to grow and they're doubling down on the U.S. International tourism is returning. Domestic tourism is strong. Our redevelopment pipeline is growing with exciting projects. In addition to our newly announced premium outlet, new developments and expansions, we are experienced at managing our business through volatile periods, including leveraging our existing platform for operating efficiencies, allocating capital appropriately, managing risks. We are not over our skis in any aspect of our business. I encourage you to look at our track record. We outperform in these kinds of periods, and we also do some of our best work as well. So thank you, operator. We're ready for any questions at this moment.