Simon Property Group, Inc.

Greetings and welcome to the Simon Property Group third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ward. Thank you. Mr. Ward, you may begin.

Thank you, Irene, and thank you all for joining us this morning. Presenting on today's call is David Simon, Chairman, Chief Executive Officer, and President. Also on the call are Brian McGade, 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 forwarded 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 morning 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. I'm pleased to introduce David Simon.

Good morning, and I'm pleased to report our third quarter results. Third quarter funds from operations were $1.1 billion. or $2.97 per share prior to a non-cash unrealized loss of 4 cents from a mark-to-market in fair value publicly held securities. Let me walk you through some of the variances for the quarter compared to Q3 2021. Our domestic operations had a very good quarter and contributed 5 cents of growth driven by higher rental income. Our international operations posted strong results in the quarter and increased five cents despite the negative currency impact of five cents given the strength in the dollar. These positive contributions were partially offset by an 11 cent lower contribution from our other platform investments, which reflects costs associated with the JCPenney launch of new beauty brands, Reebok integration cost, and some softening of sales compared to 2021 from our two value-oriented brands. Domestic property net operating income increased 2.3% for the quarter and 4.4% for the first nine months of the year. NOI growth for the quarter was negatively impacted by approximately 100 basis points due to the write-off of outstanding receivables from Regal Theaters upon its bankruptcy filing. Portfolio NOI, which includes our international properties, at constant currency grew 3.2% for the quarter and 5.5% for the first nine months of the year. ended third quarter 94.5%, an increase of 170 basis points compared to the prior year, and an increase of 60 basis points compared to the second quarter. TRG was 94.5%. Average base minimum rent increased for the fourth quarter in a row and was $54.80, an increase of 1.7% year over year. Leasing momentum continued. We signed nearly 900 leases for more than 3 million square feet in the quarter and have signed over 3,100 leases for more than 10 million square feet through the first nine months of the year. And we continue to have a significant number of leases in our pipeline. The opening rate on our new leases has increased 10% since last year, roughly $6. $6 per lease. Reported retail sales momentum continued. Our shopper remains resilient. We've reported another record in the third quarter of $749 per square foot for the malls and outlets, which was an increase of 14% year over year. Mills ended up at $677 per square foot, a 15% increase. TRG was 1,080 per foot, 25% increased. Our occupancy cost is at 12%, which is a level not seen since early 2015. We opened our 10th premium outlet in Japan and started construction on a significant expansion at Busan in South Korea. Our redevelopment pipeline is moving forward with more creative projects. Turning to our other platform investments, in the third quarter contributing 17 cents in FFL per share as compared to 28 cents in the prior year period. After cash distributions received, we have approximately $475 million of net investment within our other platform investments, primarily in ABG, and RGG, we expect to generate approximately $300 million in FFO from OPI. That is, for those of you like Matt, is a 60% return on investment. We believe the value of our investments in OPI is over $2 billion. We recently announced our strategic partnership with Jamestown. a global real estate investment and management firm. We see great opportunity with this investment to capitalize on the growing asset and investment management businesses. The Jamestown team are experienced mixed use operators, developers, property managers, and asset managers. We're pleased to expand our investment platform with this best in class operator. and we expect to grow their asset management business and accelerate our densification opportunities. We anticipate this accretive transaction to close prior to the end of this year. Turning to the balance sheet, we completed the refinancing of 16 property mortgages during the first nine months of the year for a total of $1.8 billion. at an average interest rate of 4.78%. Our balance sheet is strong with approximately $8.6 billion in liquidity. Net debt to EBITDA is at 5.7 times and our fixed charge coverage is over five times. Today we announced a 9.1% increase in our common stock dividend and we will pay $1.80 per share for the fourth quarter. The dividend is payable on December 30th. Since May, we have purchased 1.8 million shares of our common stock at an average price of $98.57 per share. Given our current view for the remainder of the year, we are increasing our full year 2022 comparable FFO guidance from $11.70 to $11.77 per share to $11.83 per share to $11.88 per share compared to $11.44 last year. So that's an increase of 13 cents at the bottom end of the range and 12 cents at the midpoint and an increase of 26 cents at the midpoint compared to our initial guidance for the year. This guidance increase comes in the face of a strong US dollar, rising interest rates, and inflationary pressures. Now, just let me conclude by saying we had another impressive quarter. And before we get to questions, I would like to share some thoughts with you. For nearly 30 years, As a public company, like many companies and industries, we have dealt with significant shifts within our industry. In our case, we embrace these challenges and are better operators and more thoughtful and astute capital allocators. Many have tried to kill off physical retail real estate and, in particular, enclosed malls. And I need not remind you when... Physical retail was closed in COVID. All the naysayers saying that physical retail was gone forever. However, brick and mortar is strong. Brick and mortar retailers are strong and e-commerce is flatlining. And importantly, over this period of time, we have paid out $39 billion in dividends to shareholders as we have become stronger and more profitable. And why do I bring this up constantly? Well, because hopefully this will put an end to the so-called negative mall narrative, as you can't pay those dividends without a strong underlying business. Now, operator, we're ready for questions.