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spk00: Greetings.
spk30: Welcome to Time and Property Group fourth 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'll now turn the conference over to your host, Tom Ward. You may begin.
spk04: Thank you, Smallwood. Good evening from Atlanta. 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. 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 filing 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 morning, this afternoon, 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.
spk13: Good evening from Phipps Plaza, where we recently completed our transformation, including a new office building. a new Nobu Hotel, and a Lifetime Resort. I'm pleased to report our fourth quarter and full year results. We generated approximately $4.5 billion in FFO in 2022, or $11.95 per share. On a comparable basis, full year FFO per share was $11.87 an increase of 3.8% year over year. We returned approximately $2.8 billion to shareholders in dividends and shares. And total dividends today paid since our IPO now totals approximately $39 billion. We invested approximately $1 billion, including accreted development projects, and expanding our other investment platform into the growing asset and investment management businesses with our Jamestown partnership. These consistent, strong results are a testament to the quality of our portfolio, a relentless focus on operational and cost structure, disciplined capital allocation, and our team's commitment to our shoppers and communities. The fourth quarter funds from operations were $1.27 billion, or $3.40 per share. Included in the fourth quarter results was a net gain of $0.25 per share, principally from the sale of our interest in the Eddie Bauer Licensing JV in exchange for additional equity ownership in authentic brands group, authentic. We now own 12% of authentic, valued at approximately $1.5 billion. Let me walk through some variances for this quarter compared to Q4 of 2021. Our domestic operations had a very good quarter and contributed 23 cents of growth, driven primarily by higher rental income and with some lower operating expenses. These positive contributions were partially offset by higher interest expense of 3 cents and a 15 cent lower contribution from our other platform investments. 2021 was a great year for our retailers. However, in 2022, Forever 21 and JCPenney were affected by inflationary pressures and consumers reducing their spend. Despite not achieving the same profitability that we did in 2021, we are pleased on how we and the management teams dealt with the unanticipated external environment. Turning to domestic property NOI, we increased 5.8% year-over-year for the quarter and 4.8% for the year. Portfolio NOI, which includes our international properties of constant currency, grew 6.3% for the quarter and 5.7% for the year. Occupancy for malls and outlets at the end of the fourth quarter was 94.9%, an increase of 150 basis points compared to prior year and an increase of 40 basis points sequentially. The mill's occupancy was 98.2 percent, and TRG was 94.5 percent. Average base minimum rent was $55.13 per foot, an increase of 2.3 percent year over year. For the year, we signed 4,100 leases for more than 14 million square feet. Over two years, we've now signed 8,000 leases for more than 29 million square feet. And we have a significant number of leases in our pipeline that will open for late 2023 and 2024 openings. Reported retailer sales momentum continued. We reached another record in the fourth quarter at $753 per square foot. With the malls and outlets combined, an increase of 6% year over year. All platforms achieved record sales levels, including the mills at $679 per square foot, which was a 5% increase. TRG was $1,095 per square foot, an 11% increase. And our occupancy at the end of the fourth quarter was 12%. We opened a new development in 2022, our 10th premium outlet in Japan. Construction continues our new outlet in Normandy, France, west of Paris. This will be our second outlet in France and our 35th international outlet. Our international outlet platform is a hidden jewel for SPG. As a frame of reference, it is bigger and much more profitable with much higher sales per square foot than another public company's portfolios. We completed 14 redevelopments and we will complete another major redevelopment project this year at some of our most productive properties. In addition, we expect to begin construction this year on six to eight mixed use projects. All of this will be funded with our internally generated cash flow. Now turning to other platform investments, in the fourth quarter. It contributed 23 cents per share in FFO compared to 38 cents in the prior year period. For the year, OPI contributed 64 cents in FFO compared to $1.07 in the prior year. We are pleased with the contribution from our OPI investments. especially given our de minimis cash investment we've made in these companies. Turning to the balance sheet, we completed refinancing on 20 property more at least for a total of $2.3 billion at an average interest rate of 5.33%. Our A-rated balance sheet is as strong as ever. Our fixed coverage ratio is 4.8 times and we ended the year with approximately $7.8 billion of liquidity. In 2022, we paid approximately $2.6 billion in common stock dividends in cash. We announced $1.80 per share this quarter, which is a 9% increase over the same period last year. The dividend is payable at the end of March, at the end of this quarter on March 31. We also repurchased 1.8 million shares of our common stock in an average purchase price of $98.57 in 2022. Moving on to 23, our comparable FFO guidance is $11.70 to $11.95 per share. Our guidance reflects the following assumptions. Domestic property NOI growth of at least 2 percent, increased interest expense compared to 2022 of approximately 30 to 35 cents per share, reflecting current market interest rates on both fixed and variable debt assumptions, similar OPI investment contribution, FFO contributions, compared to 2022, the continuing impact of the strong US dollar versus the Euro and the Yen, no significant acquisition or disposition activity, and a diluted share count of approximately 374 million shares. To conclude, we had another excellent year, effectively navigating external headwinds that included rising interest rates, strong U.S. dollars, inflation, and a somewhat softening economy. We have consistently posted industry-leading results through our hard work, innovation, great people, and great assets, and we continue to be excited about our plans for 2023. If you come to Atlanta, you will see what we're doing. And it's a great example of the future growth prospects of our company and will now allow for Q&A. Thank you.
spk30: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. of our teachers using speaker equipment. It may be necessary to pick up your handset before pressing the start keys. One moment while we poll for questions. Our first question comes from the line of Ronald Camden with Morgan Stanley. Please proceed with your question.
spk35: Great. Just starting with the guidance of at least 2% sort of organic growth next year. Obviously, occupancy is already back to 95%. Just a little bit more color on that. How much of that is occupancy gain? How much of that is rent bumps? Just trying to get a sense of what's driving that. Thanks.
spk13: Well, I think it's all of the above. It's rent bumps. It's occupancy gain. We still, and this is very important to underscore, we still have a lot of openings in scheduled for the latter half of 23 and the early part of 24. So we're not going to see the full contribution of those tenants open until essentially really a run rate of 24, I'd say, sometime in 24. Now, you ask why? Well, because we have a high-quality group of retailers opening these and it takes a while to build out their quality stores. But it's occupancy gains, it's rental increase, you know, it's spread increases. It's a reduction in our temporary tenant income because we're leasing, you know, space permanently. And it's basically assuming that a lot goes into this but it's basically assuming relatively flat sales. Now, if you remember last year, we said up to 2%. This year, we, you know, obviously blew past it. It was total for the domestic properties of clearly 5%, roughly 5%, 4.8. So, you know, we're hopeful we'll do better, but, you know, again, we still have to make assumptions, and that's why we... like where we're at, and the biggest assumption that, you know, is somewhat of the unknown is sales.
spk30: Our next question comes from the line of Steve Sackwell with Evercore ISI. Please proceed with your question.
spk37: Yeah, thanks. Thanks for that answer, David. I guess as you think about your other platform investments and, you know, some of the monetizations that you talked about with authentic brands, you know, how do you sort of think about those on a go-forward basis against maybe making new investments in new retailers that, you know, may be struggling at this time?
spk13: Well, you know, we have a unique relationship with Authentic. That's a very important partnership, so to speak, both as a big shareholder but also, you know, we're 50% owners together, 50 for us, 50 for Authentic and Spark. And we have a different ownership structure with JCPenney We don't really have any plans for Spark to buy additional retailers. We're very opportunistic on that. We had a very busy year last year with Reebok, where Spark became the domestic operating partner for Reebok. A very complicated deal, as you remember. That did depress earnings. We mentioned that to you early last year, that it did depress earnings because we knew we had some losses to incur this year. So hopefully we'll be past that this year. But we really don't have any plans to acquire anything. If we do, it'll be opportunistically. And just to, you know, we really, you know, we've done our best. most of our work has been, um, you know, with, um, you know, on, on the bankruptcy front or, um, where, where a, somebody wanted to unload, um, a business and, and, but generally there's not a lot of distress in retail right now that, you know, I'm not saying it won't develop in the year, but, um, You know, there's some brands out there that are in trouble that obviously people know about, but we don't see playing in any of those situations.
spk18: Our next question comes from the line of Derek with Deutsche Bank.
spk30: Please proceed with your question.
spk33: Hi. Good evening, everybody. Can we get a more granular update on Fitz Plaza? The repositioning has been open for, I'd say, most or at least part of 4Q. So I guess, you know, how is it tracking versus plan? You know, what changes in traffic are you seeing or any notable change of in-line rents? Any deets would be appreciated. And I guess, lastly, you know, the project seems to have increased your plan for accelerating, you know, some other mixed-use endeavors, I guess, with Jamestown. Any more information would be helpful. Thank you.
spk13: Yeah, so it really just opened. So the hotel opened at the end of October, November, but it's really new. The office, literally the first tenant just moved in January, mid-January. We just did a tour of that. We still have a lot of lease up. Just to give you a rough number, pre-investment, Phipps did in the low 20s of NOI. We think it'll be stabilized close to 60. And, you know, we'll have invested around $350 million in it over that period of time. So, again, we're a big company. We don't really get into, like, granular detail. But, you know, we basically increased it. We'll increase the NOI by about $35 million. Remember, this was a Belks department store. So in the Belks department store, we couldn't lease up that wing. We now have a plaza that has been created external. We announced Hermes opening into the plaza and part of the wing that, you know, really was difficult to lease with Belks as the anchor. We have an unbelievable lifetime resort. If you haven't seen what they build or their product, both with lifetime work, the pool and the restaurants and the services and the salon and obviously all the fitness activities, I'd encourage you to do so. And we have a, you know, class A plus office, the best in Buckhead that just opened. So again, Low 20, 60, $350 million investment is the math. Now, again, we're doing, and you mentioned Jamestown. Jamestown investment is in the investment and asset management business. So these mixed-use developments that I mentioned in my call text, we're doing all of those you know, by ourselves or with partners that we've used before. So that really isn't with Jamestown. Again, we look at the Jamestown relationship, future endeavors that we can do together or in partnership. But, you know, we're very active in building out our platform now. And Seattle is an example. We're about to, you know, start a residence in. you know, a hotel, which finally got approved, and that's going to start construction. You know, we can go through the list. But all that Simon Property Group owned, just like Phipps, which we own 100% of. Nobu, we own, obviously, you know, Lifetime, you know, is a lease. And then the office building we own, too, which is all 100% owned asset. So I don't want you to... you know, to confuse those two. But that's the rough math on FIPS. And then the true lease-up of FIPS, again, which goes back to my earlier comment on the NOI, the true lease-up of FIPS, because you have, you know, E.C. Milan and some of the high-end brands building out their stores, It's not a three-month build. It's, in many cases, nine months to a year. The true offering that FIPS will have will really show in 24 when all of these retailers open their stores. So Christian Louboutin, Hermes, and Acris, and on and on and on. But most of those will either open late 23 or 24, and that's when FIPS opens. really will be finished. You know, these things don't just, they don't just flip a switch and it opens. So that gives you a sense of it. We think that true pro forma, this will, you know, will ultimately manifest itself in year 25 or even in 26. Okay.
spk30: Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
spk24: Good evening. Good evening out there, David. So question on the retailer brand portfolio and your equity stake in authentic brands. You guys have a headwind or sorry, not a headwind. You guys have fluctuating contribution from retail. It's just based on their actual sales, right? Because it's not rents. It's based on sales. Yet I'm assuming you get some sort of recurring cash flow from the intellectual property that you own in authentic brands, managing the brands and all that. So I'm just trying to understand, as you guys sell more of the brand equity and exchange it for a bigger stake of authentic brands, how does your income mix switch from being solely sales dependent to being more consistent, whether it's managing or other sorts of more regular fee income versus volatility from, you know, however many jeans or shorts are sold in a given quarter.
spk13: All right, if you're confusing, I'll take you through a tutorial, because I like you, Alex, so here we go. Spark operates the domestic business of the brands Lucky, Aeropostale, Forever 21, you know, down the list, okay, Brooks Pundit, et cetera. It licenses the brands from authentic and it pays a royalty fee to authentic. And then we and our partner are authentic and it pays rent to landlords, including Simon that it will pay, you know, it'll pay rent to, um, you know, forever 21 could be in a Bernardo property. In fact, it is in times square and it pays rent to Steve Roth and Bernardo. Um, And that business has operating profit. And we share in that 50-50 with Authentic. So we actually, now that we converted and exchanged our license that we own together, now we have historically done the license business on a JV basis. We've decided over time to exchange that into stock of Authentic. And that's why we're not a shareholder in Authentic, but eventually have become a 12% shareholder in Authentic through the exchange of our interest in the JV license business for stock into Authentic. Authentic's a big company. It does a billion dollars of revenue, close thereabouts. But it owns the license of, you know, many, many brands beyond Spark. You know, it owns, you know, its partnership with David Beckham, its partnership with Shaquille, Elvis Presley, you know, Juicy Couture, and, you know, on down the list. You can Google it. It'll give you all the names. But Spark is essentially the retail operating company. So when you think of Spark, you should think of it similar to any other retailer like American Eagle or anybody else that operates stores, operates e-commerce, et cetera. It does wholesale. The only difference is it pays a royalty to authentic. It does not pay a royalty to sign a property group. So the only vagaries... that Simon Property Group has is in fact what the operating profits of Spark are. And in the case of 21 versus 22, the big difference was essentially forever 21 because that teenage consumer obviously cut back with the rapid increase in gas prices and inflation and the uncertain economic environment. So I know we're not allowed, but Can we let Alex, I'm asking Tom Ward, who's the police of the call, can we ask Alex if he understands this now? Yes. Okay, Alex, do you understand this?
spk24: Was I perfectly clear? So if I take away what you're saying, SPG lives really on the retail sales and performance. Your 12% stake in AB doesn't generate any fees to you. So, again, the focus is really the earnings derived purely from sales. There's not any sort of recurring.
spk13: Well, I mean, it's more than sure. Sales are important, but, you know, there's gross margin. They also sell wholesale. Okay, so Brooks Brothers does have wholesale accounts. So it's more, but it generates EBITDA basically through running the business, which includes stores, e-commerce, wholesale, and certain other ventures. Authentic, because we equity account, they're a very profitable company with high, you know, high, you know, high gross margins. It's an asset-like company, essentially. We take our share of earnings from them, net income, because they are, you know, taxpayer, et cetera. But together, all of those businesses, Spark, RGG, which is our partnership with Michael Rubin, who owns Fanatics, and Authentic, all of that rolls through OPI. And OPI contributed $0.64 out of $11.87. So it's in that range, to give you a sense. So $0.64 out of $11.85. But hopefully that helps explain it. Last chance? You got it? I got it. No problem. Thanks, David. Thank you.
spk30: Our next question comes from the line of Vince Tiboni with Green Street. Please proceed with your question.
spk25: Hi, good afternoon. Could you provide some color on leasing economics and how those are trending in the current macro environment? Just given current NOI guidance is about 2%, which is lower than average contractual bumps, and there should be some occupancy upside. This just seems to imply leasing economics aren't great, but I know it's contrary to what you said on recent calls. Could you just help me better understand kind of the dynamics at play here with guidance and maybe where leasing economics are right now?
spk13: Yeah, look, I would say we have positive spreads across the portfolio in renewals and, you know, new leases versus existing leases for new sticks. But again, we also have operating expense increase because we're not immune to security cost increases, housekeeping, all of the normal operating expenses. To some extent, our fixed-cam bumps don't cover that. We're also projecting flat sales. Obviously, to the extent that sales outperform that, we'll outperform as well. We have these cases when we're adding great retailers, great restaurants to our portfolio. You have to take out the tenant that was, in many cases, temporary. You have to take that out. You basically have nine months of downtime where you have no income for it. Now, You know, like we did last time, Vince, we said up to two. We did 4.8. I'm hoping to do better. But, you know, those are basically the determinants. And that's why we said, you know, better than 2%. But we have some operating expense increases. Real estate taxes unbelievably continue, even though we're the, goose that continues to lay the golden eggs for all of the communities in which we operate. You know, our taxes continue to go up. We have operating expenses that go up with inflationary pressures. We have downtime. We have flat sales. And we lose temporary income while we're re-tending and going to physical, you know, whether we're going to permanent income. All of that's great news. But our rent spreads are positive. Renewals are positive, and that's been the difference. Then, obviously, we'll throw COVID out, but even the trend prior to COVID, renewals were under pressure, as you know, Vince. And the demand continues to be very good.
spk25: Just one follow-up. Is variable lease income, do you expect that to continue to trend down just as you unwind, maybe some COVID lease modifications? Or how should we think about that part of the puzzle, too, going forward?
spk13: We have budgeted it basically down slightly because, number one, is to the extent that a tenant renews the lease, we're getting some of that overage into the you know, into, um, uh, you know, the base rent. Uh, if you remember out of bankruptcy forever, 21, um, pays basically percentage rent to all of its landlords, us included. It had a tough year last year, as I mentioned earlier. And, um, you know, we're budgeting basically flat this year. So, um, You know, there's a lot that goes on that kind of, you know, you got to get separated between overage and percent rent. It's a little bit of a crystal ball. You know, there are always retailers that do well, some that slow down. You know, we're pretty good at anticipating who's going to be great, who's not, but, you know, We're not the ones, other than Forever 21, we're not the ones putting the stuff in the stores itself, okay? Forever 21, you can blame it on us, okay? So I hope that helps.
spk26: No, thanks. No, this is very helpful. Thank you.
spk14: Thank you.
spk30: Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question.
spk03: Great, thank you. David, you had mentioned Forever 21, JCPenney's, managed some inflationary headwinds in their business. I'm just kind of curious with your purview through Spark and other investments, just how you think the retailers that you're invested in, maybe other tenants that people have concerns about or have been talking about in the news, are positioned heading into 23 from you know, a gross margin management perspective and just balance sheet and how much risk you see in this current environment versus maybe the kind of the headline fears that are in the market.
spk13: Yeah. Right now we feel really good about our retailers. I think they were very focused on entering 23 with, with you know, good, clean inventories. We feel like most of them have managed that. I ask my leasing folks all the time, any pullback on demand. It's not really happened. So we feel good about that. Demand continues to be generally very strong. And I think they, you know, really, you know, because of the bounce back out of COVID, really, you know, got the benefit of kind of getting their house in order. So I think on a credit side, you know, we're feeling very comfortable. Right, Brian? Yeah.
spk19: Yeah, watch this. It's been lower since it's been years. The tenant community rebuilt its financial position during COVID and is coming out of it in a much better place.
spk13: So, nothing that, you know, obviously you've got, you know, a couple of big names out there, but we really have very little exposure to them. And in some cases, we'd like to, you know, most of them are boxed. They're mostly in strip centers, so... So I'd say generally, knock on wood, I think credit side is pretty good and demand is good. December was very spotty for a lot of retailers. On the other hand, after Christmas, you know, most had a really good January. And again, I think the mistake we made, Simon Property Group made, is that, again, Spark was profitable even with, even though it didn't meet the, even though it didn't meet the financial results of what, and again, we shouldn't dwell on this too much because again, 64 out of 11, $0.64 out of $11.87. But it's important just so, you know, we'll do a little mea culpa. We made the mistake that thinking 21, you know, we budgeted basically flat to 21, and 21 was, for a couple of the brands there, just extraordinarily profitable. We made some tactical mistakes at Forever 21. We brought in a new CEO to rectify those mistakes. She's doing a terrific job, so we're very pleased there. We also are very pleased with JCPenney. It's unbelievably profitable EBITDA. You can see the EBITDA. There's some public filings out there. But it didn't have the year of 21, but we're very pleased where that company is positioned. And we're extremely pleased with the management team and all that they're doing to reinvigorate the brand that means so much to that consumer in those communities. And we're taking a different tack than others that have managed or owned that brand. We're actually reinvesting in that company to make it very important for those communities. So very pleased with how we're positioning Penny. But it had... you know, I don't know if I can disclose it, but it had a lot of EBITDA, okay? So, you know, and our partner, Brookfield, we'll let Brookfield take, we'll let Brookfield announce it if they do their, you know, I'm kidding, but, you know, but it was very profitable from an EBITDA point of view. So, we're very pleased there with the brands, but we did make the mistake of thinking 21 would repeat, and then obviously, You had a lot of volatility from a macro point in 22 with huge increases in interest rates, huge increase in price and food and energy costs that the consumer was whipsawed. And we felt the impact of it. It's stabilized now, we believe.
spk30: Our next question comes from the line of Craig Smith with Bank of America. Please proceed with your question.
spk08: Thank you. Given the China reopening, I wonder if you could outline how these visitors could impact your coastal premium outlets and your dominant coastal malls.
spk13: Well, I think we haven't seen the benefit, but just walking, you know, we... I don't want to get into the geopolitics of what's going on, but we think there's a real benefit to our landmark assets that have always been shopped by the Chinese consumer or the Asian consumer. uh we're starting to see that a little bit but um you know we're not planning for that to really accelerate 23 but we're hopeful that it will thank you our next question comes from the line of floris and nikam with compass point please proceed with your question thanks uh david uh uh
spk40: You had talked last quarter, actually, in response to a question I asked about recovering back to 2019 levels of same property NOI, which we reckon to be about $6.2 billion. But obviously, that does not include some of your retailer investments. But depending on how you slice it, I'm just trying to do the math here, but you're at least $200 million short, even if you include those retailer investments. If you can walk us through, that would imply that you would get to around 3.7% NOI growth to get back to those levels. You're clearly not guiding to that yet. You're guiding to 2%. But what are the headwinds, if you will?
spk13: Well, of course, I think you can't, you really should just focus on domestic growth. To put the retailers in there, there's too much volatility. That's not something we look to. We're focused on our domestic property. I don't want to get back to 2019 numbers before we were shut down by the pandemic. The short answer is we will get there on a run rate by the end of this year. That's the short answer. You shouldn't put the retailer NOI in there. It's, again, you got to remember, we have basically no cash investment in Spark. So, you know, and I know we could talk about it all day, but it's, when you think about Simon Property Group, we want you to think about those investments as a gift with purchase, okay? You get this great profit company that owns all this real estate. It's redeveloping it. Great balance sheet. The ability to make smart investments with an unbelievable return on investment outside its core business. And that's what you get with a seasoned team that's experienced, you know, from recession to credit crisis to a shutdown in a pandemic. Okay? And we've managed it. True at all. So the bottom line is our domestic property NOI, because of the delay in some of these openings, we will get back on a same property basis. Because remember, the other thing for us, we have properties in and out. So you can't go back at 19. The portfolio is different. But if you do the same portfolio that we owned today, versus the same portfolio that we own, I mean, capital, will be there by the end of this year.
spk40: Okay? And that would... And, David, that includes... The $6.2 billion was included in your stake in Taubman as well, but I'm just curious because... We're not including Taubman in it.
spk13: This is just the domestic property in Hawaii. So we're not even including our international... So what we can give you, if you combine the mills, outlets, and malls domestic portfolio that we owned in 19 and that we still own in 22, we will get there on a run rate by the end of this year. Simple as that. We're not that far off, but we have delayed openings.
spk39: Okay.
spk13: And depending on where sales come in, it's even possible we make it this year.
spk40: And that's the way to look at it, and that's the only way to look at it, really. I don't disagree. The F&O pipeline, has that changed from the last quarter as well? You mentioned some of your space is opening later in 23 and then 24. Yes. Obviously, that has the potential to impact your NOI growth going forward by 5% to 7%, depending on the rent that you signed, plus your fixed rent bumps. The math that we have suggests that 2% is the extreme low side of what's probably going to happen over the next two to three years.
spk13: Yeah, I mean, certainly if you look at it over that period of time, we went all to, you know, way out the farm. And, again, I just go back to last year. We try to be as thoughtful in doing this, but there are, you know, there are variabilities to it, overage rent being the biggest. But we also have some certain inflationary pressures that we as landlords and property owners have to deal with that I mentioned earlier. And again, you know, you have downtime. But, you know, I would hope that we would beat our number just like we did last year. And just like we have historically.
spk30: Our next question comes from the line of Michael Goldsmith with UBS. to proceed with your question.
spk06: Good afternoon. Thanks a lot for taking my question. In the past, you've talked about 80% of the NOI being generated by the top 50% of the properties. Does this remain true? And can you talk about the demand trends and pricing power that you have in the top half of the portfolio relative to the bottom half?
spk13: Well, I don't – anybody has a vision like that?
spk21: Michael, that's the whole truth. Our top 100 assets generate roughly 80% of our capacity in water.
spk13: Yeah, so it's more than 50 properties. It's more than 50 properties. So I'd say... Demand across the board is good. Obviously, the higher-end property probably has more demand, but we're generally, you know, our leases still to this day, our occupancy cost is low, and our rent spreads across the board are generally positive.
spk18: regardless of the sales per square foot.
spk30: Our next question comes from the line of Mike Mueller with J.P. Morgan. Please proceed with your question.
spk41: Yeah, hi. Just a quick one. For your platform investment FFO forecast, are you expecting any significant non-recurring costs like you had in the 2022 results? No. Got it.
spk18: Okay, thank you.
spk30: And our next question comes from the line of Pandell St. Juice with Mizuho. Please proceed with your question.
spk38: Hey, good evening, David and team. Hope you're well. I was hoping, David, I was hoping maybe you could share some thoughts on deploying capital in the current macro scenario. We noticed you didn't buy back any stock in the fourth quarter, so I guess I'm curious what your level of interest in stock buybacks is here today. And second, I know you mentioned that there's no sizable acquisitions or dispositions in the guide, but I'm curious what your view of the transaction market for malls is, at least today. Clearly, things are still a bit stalled across the board, but there have been a few trades in California the last couple months, so curious what you think of those trades and if there are any pricing read-throughs. Thanks.
spk13: Well, I think we're generally pleased that we're seeing some activity in our, you know, sector. You know, it's great that, you know, there's others out there that are, you know, in other industries, you know, real estate industries that are trying to grow externally, you know, as an example of what was today that was announced. you know, it's good to see we're not the only ones that, you know, that like to, you know, like to, um, you know, make things happen externally. So that, that's good. That's good. I think our strategy has been, um, uh, you know, essentially confirmed by others, other players in our industry where size and economies of scale, um, see the benefits. So it's always, it's always good to see, you know, we saw it in the, uh, warehousing world and we saw it in the, now we might see in the storage world. So it's great that, you know, we see that. You know, from a stock buyback, I think our dividend is, you know, is really where we're focused growing that. One thing I mentioned hopefully in my conference text that you heard was We paid out $39 billion in dividends, a staggering number when you put it in perspective. That does not include any stock buyback. That's just pure dividends. I'd say that's obviously the focus. But if the stock comes under pressure, we still have the ability to deal with that. So that is in our arsenal now. We got a lot of mixed-use properties. I'd say generally relatively quiet on the acquisition front. We did create our partnership with Jamestown which we're focused on this year and obviously the years to come to grow that relationship. But you know we've got a lot going on and and the capital to continue to create external opportunities. And we've been, you know, we haven't batted a thousand, but, you know, we've certainly moved the needle profitably with our investments and created unbelievable return on investment, both in the real estate. You know, it's still one of the best deals ever done in real estate was our deal on premium outlets, you know, which I'm happy to walk through the math, not today, but, you know, still one of the best, you know, multiple deals ever done in our industry. And at that time, you know, we were wildly criticized for it. But one of the best deals done, you know, in the public company space.
spk38: Got it, got it. No, I appreciate that, but it sounds like at a high level, without putting words in your mouth, that the focus of your capital investing today is going to be more the redev, less the stock buybacks, less the acquisitions. Question, just to follow up maybe on the FFO guide itself, I appreciate some of the headwinds, the unknowns, the OPEX, the interest expense, et cetera, but I'm trying to get a sense of what else might be limiting the FFO growth this year, which is basically flat year-over-year versus the 2% at least.
spk13: Yeah, it's really... It's really simple. It's interest rate. We're losing roughly 30 to 35 cents per share just from either floating rate debt that's now higher or our own assumptions of what our refinancing costs are going to be. The good news is we're refinancing all of our debt. The market's there, but the cost of debt is higher. So that's really, if you cut through it all, You know, that's – you know, and when you look at kind of where the market was, very few analysts updated their numbers at all for higher interest rates. But, you know, they – I don't have to tell you they ballooned over the last 12 months.
spk38: Yep. No, I appreciate that. I wanted to get a bit of clarity, though, perhaps on bad debt. How are you thinking about that this year within the guide?
spk11: FX headwinds and maybe at least – Yeah, well, I think we've got to open it up. A little higher –
spk13: We have a little higher bad debt expense budgeted this year than last year. Thank you.
spk30: Our next question comes from the line of Juan Santabria with BMO Capital Markets. Please proceed with your question.
spk28: Hi. Thank you.
spk29: Just hoping for a little color on expected CapEx spend just in general for maintenance and then the development spend that we should be budgeting and what kind of returns or NOI contributions we should be thinking about on the DAB 3DEP stuff that would flow through into 2023 as we go through our model?
spk13: I would look at our 8K, because the development spend will add to that, but obviously when you start a real estate project, it's over a two-year, you know, sometimes three-year process. So, you know, all that's disclosed in the 8K. And the CapEx... including TA, will probably be roughly with what it was, 22, if not a little bit less. Okay, thank you.
spk30: Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.
spk17: Hey, good evening, David.
spk27: Regarding the large number of stores opening in late 23 and early 24, what's that expected NOI contribution or DOA that you're attributed to these leases that are signed but not yet been paid?
spk18: At least $100 million. On NOI or DOA? I guess NOI. Okay, thank you.
spk27: And then is there any contribution expectation from the Jamestown investment? And then if you could talk about, like, Clay Pierre that's built into guidance as well, that'd be appreciated.
spk13: That's all in Jamestown is a creative, but it wasn't a big investment. So, you know, it's in our budget, but it's not, you know, it's not really the relationships material, but the financial impact is not material. So that's one. Claypia, we, you know, it is consistent with their guidance that they'll be developing when they announce their earnings in the next couple of weeks.
spk20: There is some FX headwinds still baked in there, Greg. Yeah.
spk14: All right. Thank you. Thank you.
spk30: Our next question comes from the line of Keevin Kim with Truist. Please proceed with your question.
spk31: Thanks. Good afternoon. Hopefully I'll click on here. So when I look at your 2023 lease expirations, your portfolio still has about 10.5% expiring, which hasn't really budged in the past couple quarters. I remember from the last call you said these things can take time, especially with larger national accounts. So I was just curious if you can share an update and how we should mentally think about a realistic set of outcomes here.
spk13: Well, it's, listen, we're, you know, negotiating for the benefit of, you know, our shareholders. They're negotiating for the benefit of their shareholders. And a lot of these things we have, what I'll say, handshakes, and it's a process of being papered. So you should feel good that there's no, There's no smoking gun. There's nothing there that's going to lead to a fallout. It's just a process. And renewals are going. We're, in fact, ahead of our 23 renewals now compared to where we were last year. But some of the 22s, and in some cases because 22s took so long and we're doing 23s, So together, it's a process, but it's going well and relationships are progressing appropriately.
spk32: Okay, and just one quick one. Where should we expect your portfolio occupancy to end up by the end of this year?
spk13: 23, slightly up. Slightly up. I don't have the number, but Brian may have it for you later. Okay, last one, I guess. We're over at six, but we have one more question, and we want to finish the Q&A.
spk30: Yep, and our final question comes from the line of Linda Sties. Jeffrey, please proceed with your question.
spk34: Hi, thanks a lot for taking my question. On the guidance, the range you provide is based on comparable FFO per share. In the coming quarters, when you have a better sense of mark-to-market gains or losses, will you also show guidance for estimated diluted per share for the full year like you did in prior quarters?
spk13: Yeah, well, you know, last, you mean our mark-to-market equity investments?
spk36: Yes.
spk13: Yeah, sure. I mean, we outline it, we separate it, you know, we'll do comparable and real numbers. So you'll see both. Hopefully it'll only be up But, you know, last year we did take a reported FFO number. What was that? Eight cents. Eight cents. But we outlined those for you, Linda, so you'll see them both.
spk23: Great. Thanks a lot.
spk30: Thank you. And we have reached the end of the question and answer session. I'll now turn the call back over to David Simon for closed remarks.
spk13: Thank you, and again, I'm sure there are a lot more detailed questions. Please call Brian and Tom, and they'll be happy to walk you through more details. Thank you.
spk30: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Thank you. you Thank you. Thank you.
spk36: Thank you.
spk30: Greetings. Welcome to Time and Property Group fourth 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'll now turn the conference over to your host, Tom Ward. You may begin.
spk04: Thank you, Smallwood. Good evening from Atlanta. 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. 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 filings. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this morning, this afternoon, 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'll please introduce David Simon.
spk13: Good evening from Phipps Plaza, where we recently completed our transformation, including a new office building. a new Nobu Hotel, and a Lifetime Resort. I'm pleased to report our fourth quarter and full year results. We generated approximately $4.5 billion in FFO in 2022, or $11.95 per share. On a comparable basis, full year FFO per share was $11.87 per share. an increase of 3.8% year over year. We returned approximately $2.8 billion to shareholders in dividends and shares. And total dividends today paid since our IPO now totals approximately $39 billion. We invested approximately $1 billion, including accreted development projects, and expanding our other investment platform into the growing asset and investment management businesses with our Jamestown partnership. These consistent, strong results are a testament to the quality of our portfolio, a relentless focus on operational and cost structure, disciplined capital allocation, and our team's commitment to our shoppers and communities. The fourth quarter funds from operations were $1.27 billion, or $3.40 per share. Included in the fourth quarter results was a net gain of $0.25 per share, principally from the sale of our interest in the Eddie Bauer Licensing JV in exchange for additional equity ownership in authentic brands group, authentic. We now own 12% of authentic, valued at approximately $1.5 billion. Let me walk through some variances for this quarter compared to Q4 of 2021. Our domestic operations had a very good quarter and contributed 23 cents of growth, driven primarily by higher rental income and with some lower operating expenses. These positive contributions were partially offset by higher interest expense of 3 cents and a 15 cent lower contribution from our other platform investments. 2021 was a great year for our retailers. However, in 2022, Forever 21 and JCPenney were affected by inflationary pressures and consumers reducing their spend. Despite not achieving the same profitability that we did in 2021, we are pleased on how we and the management teams dealt with the unanticipated external environment. Turning to domestic property NOI, we increased 5.8% year-over-year for the quarter and 4.8% for the year. Portfolio NOI, which includes our international properties of constant currency, grew 6.3% for the quarter and 5.7% for the year. Occupancy for malls and outlets at the end of the fourth quarter was 94.9%, an increase of 150 basis points compared to prior year and an increase of 40 basis points sequentially. The mill's occupancy was 98.2%, and TRG was 94.5%. Average base minimum rent was $55.13 per foot, an increase of 2.3% year over year. For the year, we signed 4,100 leases for more than 14 million square feet. Over two years, we've now signed 8,000 leases for more than 29 million square feet. And we have a significant number of leases in our pipeline that will open for late 2023 and 2024 openings. Reported retailer sales momentum continued. We reached another record in the fourth quarter at $753 per square foot. With the malls and outlets combined, an increase of 6% year over year. All platforms achieved record sales levels, including the mills at $679 per square foot, which was a 5% increase. TRG was $1,095 per square foot, an 11% increase. And our occupancy at the end of the fourth quarter was 12%. We opened a new development in 2022, our 10th premium outlet in Japan. Construction continues our new outlet in Normandy, France, west of Paris. This will be our second outlet in France and our 35th international outlet. Our international outlet platform is a hidden jewel for SPG. As a frame of reference, it is bigger and much more profitable with much higher sales per square foot than another public company's portfolios. We completed 14 redevelopments and we will complete another major redevelopment project this year at some of our most productive properties. In addition, we expect to begin construction this year on six to eight mixed use projects. All of this will be funded with our internally generated cash flow. Now turning to other platform investments, in the fourth quarter. It contributed 23 cents per share in FFO compared to 38 cents in the prior year period. For the year, OPI contributed 64 cents in FFO compared to $1.07 in the prior year. We are pleased with the contribution from our OPI investments. especially given our de minimis cash investment we've made in these companies. Turning to the balance sheet, we completed refinancing on 20 property mortgagees for a total of $2.3 billion at an average interest rate of 5.33%. Our A-rated balance sheet is as strong as ever. Our fixed coverage ratio is 4.8 times and we ended the year with approximately $7.8 billion of liquidity. In 2022, we paid approximately $2.6 billion in common stock dividends in cash. We announced $1.80 per share this quarter, which is a 9% increase over the same period last year. The dividend is payable at the end of this quarter on March 31. We also repurchased 1.8 million shares of our common stock in an average purchase price of $98.57 in 2022. Moving on to 23, our comparable FFO guidance is $11.70 to $11.95 per share. Our guidance is reflects the following assumptions. Domestic property NOI growth of at least 2%, increased interest expense compared to 2022 of approximately 30 to 35 cents per share, reflecting current market interest rates on both fixed and variable debt assumptions, similar OPI investment contribution, FFO contribution, compared to 2022, the continuing impact of the strong US dollar versus the Euro and the Yen, no significant acquisition or disposition activity, and a diluted share count of approximately 374 million shares. To conclude, we had another excellent year, effectively navigating external headwinds that included rising interest rates, strong U.S. dollars, inflation, and a somewhat softening economy. We have consistently posted industry-leading results through our hard work, innovation, great people, and great assets, and we continue to be excited about our plans for 2023. If you come to Atlanta, you will see what we're doing. And it's a great example of the future growth prospects of our company and will now allow for Q&A. Thank you.
spk30: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. of our teachers using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment while we poll for questions. Our first question comes from the line of Ronald Camden with Morgan Stanley. Please proceed with your questioning.
spk35: Great. Just starting with the guidance of at least 2% sort of organic growth next year, Obviously, occupancy is already back to 95%. Just a little bit more color on that. How much of that is occupancy gain? How much of that is rent bumps? Just trying to get a sense of what's driving that. Thanks.
spk13: Well, I think it's all of the above. It's rent bumps. It's occupancy gain. We still, and this is very important to underscore, we still have a lot of openings in scheduled for the latter half of 23 and the early part of 24. So we're not going to see the full contribution of those tenants open until essentially really a run rate of 24 sometime in 24. Now, you know, you ask why? Well, because we have a high quality group of retailers opening these and it takes a while to build out their quality stores. But it's occupancy gains, it's rental increase, you know, it's spread increases. It's a reduction in our temporary tenant income because we're leasing, you know, space permanently. And it's basically assuming that a lot goes into this but it's basically assuming relatively flat sales. Now, if you remember last year, we said up to 2%. This year, we, you know, obviously blew past it. It was total for the domestic properties of clearly 5%, roughly 5%, 4.8. So, you know, we're hopeful we'll do better, but, you know, again, we still have to make assumptions, and that's why we... like where we're at, and the biggest assumption that is somewhat of the unknown is sales.
spk30: Our next question comes from the line of Steve Sackwell with Evercore ISI. Please proceed with your question.
spk37: Yeah, thanks. Thanks for that answer, David. I guess as you think about your other platform investments and some of the monetizations that you talked about with authentic brands, how do you sort of think about those on a go-forward basis against maybe making new investments in new retailers that may be struggling at this time?
spk13: Well, you know, we have a unique relationship with Authentic. That's a very important partnership, so to speak, both as a big shareholder, but also, you know, we're 50% owners together, 50 for us, 50 for Authentic and Spark. and we have a different ownership structure with JCPenney. We don't really have any plans for Spark to buy additional retailers. We're very opportunistic on that. We had a very busy year last year with Reebok, where Spark became the operating company. a domestic operating partner for Reebok. A very complicated deal, as you remember. That did depress earnings. We mentioned that to you early last year, that it did depress earnings because we knew we had some losses to incur this year. So hopefully we'll be past that this year. But we really don't have any plans to... acquire anything. If we do, it'll be opportunistically. And just to, you know, we really, you know, we've done our, most of our work has been, you know, with, you know, on the bankruptcy front or where somebody wanted to unload a business and But generally, there's not a lot of distress in retail right now. I'm not saying it won't develop in the year, but there's some brands out there that are in trouble that obviously people know about, but we don't see playing in any of those situations.
spk18: Our next question comes from the line of Derek with Deutsche Bank.
spk30: We proceed with your question.
spk33: Hi, good evening, everybody. Can we get a more granular update on Fitz Plaza? The repositioning has been open for, I'd say, most or at least part of 4Q. So I guess, you know, how is it tracking versus plan? You know, what changes in traffic are you seeing or any notable change of inline rents? Any deets would be appreciated. And I guess, lastly... You know, the project seems to have increased your plan for accelerating, you know, some other mixed-use endeavors. I guess with Jamestown, any more information would be helpful. Thank you.
spk13: Yeah, so it really just opened. So the hotel opened at the end of October, November, but it's really, you know, it's really new. The office, literally the first tenant just moved in January. Mid-January, we just did a tour of that. We still have a lot of lease up. Just to give you a rough number, pre-investment, FIPS did in the low 20s of NOI. We think it'll be stabilized close to 60. And, you know, we'll have invested around $350 million in it over that period of time. Again, we don't – we're a big company. We don't really get into, like, granular detail. But, you know, we basically increased – we'll increase the NOI by about $35 million. Remember, this was a Belks department store. So in the Belks department store, we couldn't lease up that wing. We now have a plaza that has been created externally. We announced Hermes opening into the plaza and part of the wing that really was difficult to lease with Belks as the anchor. We have an unbelievable lifetime resort. If you haven't seen what they build or their product, both with lifetime work, the pool and the restaurants and the services and the salon and obviously all the fitness activities, I'd encourage you to do so. And we have a class A plus office, the best in Buckhead that just opened. So again, low 20, 60, $350 million investment is the math. Now, again, we're doing, and you mentioned Jamestown. Jamestown investment is, in the investment and asset management business. So these mixed use developments that I mentioned in my call text, we're doing all of those by ourselves or with partners that we've used before. So that really isn't with Jamestown. Again, we looked at the Jamestown relationship, future endeavors that we can do together or in partnership But, you know, we're very active in building out our platform now. And Seattle is an example. We're about to, you know, start a residence in, you know, a hotel, which finally got approved, and that's going to start construction. You know, we can go through the list. But all that Simon Property Group owned, just like Phipps, which we own 100% of, Nobu, We own, obviously, you know, Lifetime, you know, is a lease. And then the office building we own, too, which is all 100% owned asset. So I don't want you to, you know, to confuse those two. But that's the rough math on FIPS. And then the true lease-up of FIPS, again, which goes back to my earlier comment about on the NOI, the true lease-up of Fitts, because you have, you know, Yves Saint Laurent and some of the high-end brands building out their stores, it's not a three-month build. It's, in many cases, nine months to a year. The true offering that Fitts will have will really show in 24 when all of these retailers open their stores. Christian Louboutin, Hermes, and, you know, Acris, and on and on and on. But most of those will either open late 23 or 24, and that's when FIPS really will be finished. You know, these things don't just, they don't just flip a switch and it opens. So that gives you a sense of it. And we think the true pro forma of this will, you know, will ultimately manifest itself in year 25 or 20. or even in 26.
spk30: Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
spk24: Good evening out there, David. So question on the retailer brand portfolio and your equity stake in authentic brands. You guys have a headwind or sorry, not a headwind. You guys have a fluctuating contribution from retail. It's just based on their actual sales, right? Cause it's not rents. It's based on sales yet. I'm assuming you get some sort of recurring cashflow from the intellectual property that you own in authentic brands, managing the brands and all, and all that. So I'm just trying to understand is you guys sell more of the brand equity and exchange it for a bigger stake of authentic brands. How does your income mix switch from being solely sales dependent to being more consistent, whether it's managing or other sorts of more regular fee income versus volatility from however many jeans or shorts are sold in a given quarter?
spk13: All right, if you're confusing, I'll take you to a tutorial, because I like you, Alex, so here we go. Spark operates the domestic business of the brands Lucky, Aeropostale, Forever 21, you know, down the list, okay, Brooks Project, et cetera. It licenses the brands from Authentic, and it pays a royalty fee to Authentic. And then we and our partner, Authentic, and it pays rent to landlords, including Simon. You know, it'll pay rent to, you know, Forever 21 could be in a Bernardo property. In fact, it is in Times Square, and it pays rent to Steve Roth and Bernardo. And that business has operating profit. And we share in that 50-50 with Authentic. So we actually, now that we converted and exchanged our license that we own together, now we have historically done the license business on a JV basis. We've decided over time to exchange that into stock of Authentic. And that's why we're not a shareholder in Authentic, but eventually have become a 12% shareholder in Authentic through the exchange of our interest in the JV license business for stock into Authentic. Authentic's a big company. It does a billion dollars of revenue, close thereabouts. But it owns the license of many, many brands beyond Spark. It owns its partnership with David Beckham, its partnership with Shaquille, Elvis Presley, Juicy Couture, and on down the list. You can Google it. It'll give you all the names. But Spark is essentially the retail operating company. So when you think of Spark, you should think of it similar to any other retailer like American Eagle or anybody else that operates stores, operates e-commerce, et cetera. It does wholesale. The only difference is it pays a royalty to authentic. It does not pay a royalty to sign a property group. So the only vagaries... that Simon Property Group has is in fact what the operating profits of Spark are. And in the case of 21 versus 22, the big difference was essentially Forever 21 because that teenage consumer obviously cut back with the rapid increase in gas prices and inflation and the uncertain economic environment. So I know we're not allowed, but Can we let Alex, I'm asking Tom Ward, who's the police of the call, can we ask Alex if he understands this now? Yes. Okay, Alex, do you understand this?
spk24: Was I perfectly clear? So if I take away what you're saying, SPG lives really on the retail sales and performance. Your 12% stake in AB doesn't generate any fees to you. So, again, the focus is really the earnings derived purely from sales. There's not any sort of recurring.
spk13: Well, I mean, it's more than sure. Sales are important, but, you know, there's gross margin. They also sell wholesale. Okay, so Brooks Brothers does have wholesale accounts. But it generates EBITDA basically through running the business, which includes stores, e-commerce, wholesale, and certain other ventures. Authentic, because equity account, they're a very profitable company with high gross margins. It's an asset-light company, essentially. We take our share of earnings from them, net income, because they are, you know, taxpayer, et cetera. But together, all of those businesses, Spark, RGG, which is our partnership with Michael Rubin, who owns Fanatics, and Authentic, all of that rolls through OPI. And OPI contributed $0.64 out of $11.87. So, you know, it's in that range, to give you a sense. So $0.64 out of $11.85. But hopefully that helps explain it. Last chance? You got it? I got it. No problem. Thank you, David. Thank you.
spk30: Our next question comes from the line of Vince Tiboni with Green Street. Please proceed with your question.
spk25: Hi, good afternoon. Could you provide some color on leasing economics and how those are trending in the current macro environment? Just given current NOI guidance is about 2%, which is lower than average contractual bumps, and there should be some occupancy upside. This just seems to imply leasing economics aren't great, but I know it's contrary to what you said on recent calls. So could you just help me better understand kind of the dynamics at play here with guidance and maybe where leasing economics are right now?
spk13: Yeah, look, I would say we have positive spreads across the portfolio in renewals and, you know, new leases versus existing leases for new sticks. But again, we also have operating expense increase because we're not immune to security cost increases, housekeeping, all of the normal operating expenses. To some extent, our fixed-cam bumps don't cover that. We're also projecting flat sales. Obviously, to the extent that sales outperform that, we'll outperform as well. We have these cases when we're adding great retailers, great restaurants to our portfolio. You have to take out the tenant that was, in many cases, temporary. You have to take that out. You basically have nine months of downtime where you have no income for it. You know, like we did last time, Vince, we said up to two. We did 4.8. I'm hoping to do better. But, you know, those are basically the determinants. And that's why we said, you know, better than 2%. But we have some operating expense increases. Real estate taxes unbelievably continue, even though we're the, goose that continues to lay the golden eggs for all of the communities in which we operate. Our taxes continue to go up. We have operating expenses that go up with inflationary pressures. We have downtime. We have flat sales. And we lose temporary income while we're re-tending and going to physical, whether we're going to permanent income. All of that's great news. But our rent spreads are positive. Renewals are positive, and that's been the difference. Then, obviously, we'll throw COVID out, but even the trend prior to COVID, renewals were under pressure, as you know, Vince. And the demand continues to be very good.
spk25: in just one follow-up. Is variable lease income, do you expect that to continue to trend down just as you unwind, maybe some COVID lease modifications, or how should we think about that part of the puzzle, too, going forward?
spk13: We have budgeted it basically down slightly because, number one, is to the extent that a tenant renews the lease, we're getting some of that overage into you know, into, um, uh, you know, the base rent. Uh, if you remember out of bankruptcy forever, 21, um, pays basically percentage rent to all of its landlords, us included. It had a tough year last year, as I mentioned earlier. And, um, you know, we're budgeting basically flat this year. So, um, You know, there's a lot that goes on that kind of, you know, you got to get separated between overage and percent rent. It's a little bit of a crystal ball. You know, there are always retailers that do well, some that slow down. You know, we're pretty good at anticipating who's going to be great, who's not, but, you know, We're not the ones, other than Forever 21, we're not the ones putting the stuff in the stores itself. Forever 21, you can blame it on us. So I hope that helps.
spk26: No, this is very helpful. Thank you.
spk14: Thank you.
spk30: Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question.
spk03: Great. Thank you. David, you had mentioned Forever 21, JCPenney's managed some inflationary headwinds in their business. I'm just kind of curious with your purview through Spark and other investments, just how you think the retailers that you're invested in, maybe other tenants that people have concerns about or have been talking about in the news, are positioned heading into 23 from you know, a gross margin management perspective and just balance sheet and how much risk you see in this current environment versus maybe the kind of the headline fears that are in the market.
spk13: Yeah. Right now we feel really good about our retailers. I think they were very focused on entering 23 with, with, with, you know, good, clean inventories. We feel like most of them have managed that. I ask my leasing folks all the time, any pullback on demand. It's not really happened. So we feel good about that. Demand continues to be generally very strong. And I think they, you know, really, you know, because of the bounce back out of COVID, really, you know, got the benefit of kind of getting their house in order. So I think on a credit side, you know, we're feeling very comfortable. Right, Brian? Yeah.
spk19: Yeah, watch this. It's been lower since it's been years. The tenant community rebuilt its financial position during COVID and is coming out of it in a much better place.
spk13: So, nothing that, you know, obviously you've got, you know, a couple of big names out there, but we really have very little exposure to them. And in some cases, we'd like to, you know, most of them are boxed. They're mostly in strip centers, so... So I say generally, you know, knock on wood, I think credit side is pretty good and demand is good. And they ran, you know, they, December was very spotty for a lot of retailers. On the other hand, after Christmas, You know, most had a really good January. And, again, I think the mistake we made, Simon Property Group made, is that, again, Spark was profitable even though it didn't meet the financial results of what, and, again, we shouldn't dwell on this too much because, again, 64 out of 11, but it's important just so, you know, we'll do a little mea culpa. We made the mistake that thinking 21, you know, we budgeted basically flat to 21, and 21 was, for a couple of the brands there, just extraordinarily profitable. We made some tactical mistakes at Forever 21. We brought in a new CEO to rectify those mistakes. She's doing a terrific job. So we're very pleased there. We also are very pleased with JCPenney. It's unbelievably profitable EBITDA. You can see the EBITDA. There's some public filings out there. But it didn't have the year of 21, but we're very pleased where that company is positioned. And we're extremely pleased with the management team and all that they're doing to reinvigorate the brand that means so much to that consumer in those communities. And we're taking a different tack than others that have managed or owned that brand. We're actually reinvesting in that company to make it very important for those communities. So very pleased with how we're positioning Penny. But it had... you know, I don't know if I can disclose it, but it had a lot of EBITDA. Okay. So, you know, and our partner Brookfield, we'll let Brookfield take, we'll let Brookfield announce it if they do their, you know, I'm kidding, but, you know, but it was very profitable from an EBITDA point of view. So we're very pleased there with the brands, but we did make the mistake of thinking 21 would repeat. And then obviously we, You know, you had a lot of volatility from a macro point in 22 with, you know, huge increases in interest rates, huge increase in price and food and energy costs that, you know, the consumer was whipsawed. And, you know, and we felt the impact of it. It's stabilized now, we believe.
spk30: Our next question comes from the line of Craig Smith with Bank of America. Please proceed with your question.
spk08: Thank you. Given the China reopening, I wonder if you could outline how these visitors could impact your coastal premium outlets and your dominant coastal malls.
spk13: Well, I think we haven't seen the benefit, but just walking, you know, we've I don't want to get into the geopolitics of what's going on, but we think there's a real benefit to our landmark assets that have always been shopped by the Chinese consumer or the Asian consumer. We're starting to see that a little bit, but, you know, we're not planning for that to really accelerate to 23, but we're hopeful that it will.
spk30: Thank you. Our next question comes from the line of Flores Van Dijkum with CompassPoint. Please proceed with your question.
spk40: Thanks, David. You had talked last quarter, actually, in response to a question I asked about recovering back to 2019 levels of same property NOI, which we reckon to be about $6.2 billion. But obviously, that does not include some of your retailer investments. But depending on how you slice it, I'm just trying to do the math here, but you're at least $200 million short, even if you include those retailer investments. If you can walk us through, that would imply that you would get to around 3.7% NOI growth to get back to those levels. You're clearly not guiding to that yet. You're guiding to 2%. But what are the headwinds, if you will?
spk13: Well, of course, I think you can't, you really should just focus on domestic growth. To put the retailers in there, there's too much volatility. That's not something we look to. We're focused on our domestic property. I don't want to get back to 2019 numbers before we were shut down by the pandemic. The short answer is we will get there on a run rate by the end of this year. That's the short answer. You shouldn't put the retailer NOI in there. It's, again, you gotta remember, we have basically no cash investment in Spark. So, you know, and I know we could talk about it all day, but it's, when you think about Simon Property Group, we want you to think about those investments as a gift with purchase, okay? You get this great profit company that owns all this real estate. It's redeveloping it. Great balance sheet. The ability to make smart investments with an unbelievable return on investment outside its core business. And that's what you get with a seasoned team that's experienced, you know, from recession to credit crisis to a shutdown in a pandemic. Okay? And we've managed it. True at all. So the bottom line is our domestic property NOI, because of the delay in some of these openings, we will get back on a same property basis. Because remember, the other thing for us, we have properties in and out. So you can't go back at 19. The portfolio is different. But if you do the same portfolio that we own today, versus the same portfolio that we own, I mean, capital, will be there by the end of this year.
spk40: Okay? And that would... And, David, that includes... The $6.2 billion was included in your stake in Taubman as well, but I'm just curious because... We're not including Taubman in it.
spk13: This is just the domestic property NOI. So we're not even including our international... So what we can give you, if you combine the mills, outlets, and malls domestic portfolio that we owned in 19 and that we still own in 22, we will get there on a run rate by the end of this year. Simple as that. We're not that far off, but we have delayed openings.
spk39: Okay.
spk13: And depending on where sales come in, it's even possible we make it this year.
spk16: And that's the way to look at it.
spk40: And that's the only way to look at it, really. I don't disagree. The F&O pipeline, has that changed from the last quarter as well? You mentioned some of your space is opening later in 23 and then 24. Yes. Obviously, that has the potential to impact your NOI growth going forward by 5% to 7%, depending on the rent that you signed, plus your fixed rent bumps. The math that we have suggests that 2% is the extreme low side of what's probably going to happen over the next two to three years.
spk13: Yeah, I mean, certainly if you look at it over that period of time, you know, way out before. And again, I just go back to last year. We try to be as thoughtful in doing this. But there are, you know, there are variabilities to it. Overage rent being the biggest. But we also have some certain inflationary pressures that we as landlords and property owners have to deal with that I mentioned earlier. And again, you know, you have downtime. But, you know, I would hope that we would beat our number just like we did last year. And just like we have historically.
spk30: Our next question comes from the line of Michael Goldsmith with UBS. to proceed with your question.
spk06: Good afternoon. Thanks a lot for taking my question. In the past, you've talked about 80% of the NOI being generated by the top 50% of the properties. Does this remain true? And can you talk about the demand trends and pricing power that you have in the top half of the portfolio relative to the bottom half?
spk13: Well, I don't know if anybody has a question like that.
spk21: Michael, that's the whole truth. Our top 100 assets generate roughly 80% of our capacity in a lot.
spk13: Yeah, so it's more than 50 properties. It's more than 50 properties. So I'd say demand across the board is good. Obviously, the... The higher-end property probably has more demand, but we're generally, you know, our leases still to this day, our occupancy cost is low, and our rent spreads across the board are generally positive, regardless of the sales per square foot.
spk30: Our next question comes from the line of Mike Mueller with J.P. Morgan. Please proceed with your question.
spk41: Yeah, hi. Just a quick one. For your platform investment FFO forecast, are you expecting any significant non-recurring costs like you had in the 2022 results?
spk15: No.
spk18: Got it. Okay. Thank you. That's a good question, and the answer is no, we're not.
spk30: And our next question comes from the line of Pandell St. Juice with Mizuho. Please proceed with your question.
spk38: Hey, good evening, David and team. Hope you're well. I was hoping, David, I was hoping maybe you could share some thoughts on deploying capital in the current macro. We noticed you didn't buy back any stock in the fourth quarter. So I guess I'm curious, you know, what your level of interest in stock buybacks is here today. And second, I know you mentioned that there's no sizable acquisitions or dispositions in the guide, but I'm curious what your view of the transaction market for malls is, at least today. Clearly, things are still a bit stalled across the board, but there have been a few trades in California the last couple months, so curious what you think of those trades and if there are any pricing read-throughs. Thanks.
spk13: Well, I think we're generally pleased that we're seeing some activity in our sector and You know, it's great that, you know, there's others out there that are, you know, in other industries, you know, real estate industries that are trying to grow externally. You know, as an example, what was today that was announced. You know, it's good to see we're not the only ones that, you know, that like to, you know, like to... make things happen externally. That's good. I think our strategy has been essentially confirmed by other players in our industry where size and economies of scale see the benefits. It's always good to see. We saw it in the warehousing world. We saw it in the Now we might see in the storage world. So it's great that we see that. From a stock buyback, I think our dividend is really where we're focused growing at. One thing I mentioned hopefully in my conference text that you heard was we paid out $39 billion in dividends. It's a staggering number. When you put it in perspective, that does not include any stock buyback. That's just pure dividends. I'd say that's obviously the focus. But if the stock comes under pressure, we still have the ability to deal with that. So that is in our arsenal. We've got a lot of mixed-use properties. I'd say generally... relatively quiet on the acquisition front. We did create our partnership with Jamestown, which we're focused on this year and obviously the years to come to grow that relationship. We've got a lot going on and the capital to continue to create external opportunities. We haven't batted a thousand, but But, you know, we've certainly moved the needle profitably with our investments and created unbelievable return on investment, both in the real estate. You know, still one of the best deals ever done in real estate was our deal on premium outlets, you know, which I'm happy to walk through the math, not today, but, you know, still one of the best. multiple deals ever done in our industry. And at that time, you know, we were wildly criticized for it. But one of the best deals done, you know, in the public company space.
spk38: Got it, got it. No, I appreciate that. But it sounds like at a high level, without putting words in your mouth, that the focus of your capital investing today is going to be more the redev, less the stock buybacks, less the acquisitions. Question, just a follow-up maybe on the FFO guide itself. I appreciate some of the the headwinds, the unknowns, the OPEX, the interest expense, et cetera. But I'm trying to get a sense of what else might be limiting the FFO growth this year, which is basically flat year-over-year versus the 2% at least.
spk13: Yeah, it's really simple. It's interest rate. You know, we're losing roughly 30 to 35 cents per share just from, you know, either floating rate debt that's now higher or our own assumptions of what you know, our refinancing costs are going to be. The good news is we're refinancing all of our debt. The market's there. But, you know, the cost of, you know, the cost of debt is higher. So that's really, if you cut through it all, you know, that's, you know, and when you look at kind of where the market was, very few analysts updated their numbers at all for higher interest rates. But, you know, I don't have to tell you they ballooned over the last 12 months.
spk38: No, I appreciate that. I wanted to get a bit of clarity, though, perhaps on bad debt. How are you thinking about that this year within the guide?
spk11: Yeah, I think we've got to open it up.
spk13: We have a little higher bad debt expense budgeted this year than last year. Thank you.
spk30: Our next question comes from the line of Juan Santabria with BMO Capital Markets. Please proceed with your question.
spk28: Hi. Thank you.
spk29: Just hoping for a little color on expected CapEx spend just in general for maintenance and then the development spend that we should be budgeting and what kind of returns or NOI contributions we should be thinking about on the DAB, REDAB stuff that would flow through into 2003 as we look at our model.
spk13: I would look at our 8K because the development spend will add to that, but obviously when you start a real estate project, It's over a two-year, you know, sometimes three-year process. So, you know, all that's disclosed in the 8K. And the CapEx, including TA, will probably be roughly with what it was, 22, if not a little bit less.
spk14: Okay, thank you.
spk30: Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.
spk17: Hey, good evening, David.
spk27: Regarding the large number of stores opening in late 23 and early 24, what's that expected NOI contribution or DOA that you're attributed to these leases that are signed but not yet been paid?
spk18: At least $100 million. On NOI or DOA? I guess NOI.
spk27: Okay, thank you. And then is there any contribution expectation from the Jamestown investment?
spk13: um and then if you could talk about like like clay pierre uh that's built into guidance as well that'd be appreciated uh that's all in jamestown is i'm creative but it wasn't a big investment so uh and so you know it's in our it's in our budget but it's not you know it's not really the relationships material but the financial impact is not material um So that's one. Claypia, we, you know, it is consistent with their guidance that they'll be developing when they announce their earnings in the next couple of weeks.
spk20: There is some FX headwinds still baked in there, Greg. Yeah.
spk14: All right. Thank you. Thank you.
spk30: Our next question comes from the line of Keevin Kim with Truist. Please proceed with your question.
spk31: Thanks. Good afternoon. Hopefully a quick one here. So when I look at your 2023 lease expirations, your portfolio still has about 10.5% expiring, which hasn't really budged in the past couple quarters. I remember from the last call you said these things can take time, especially with larger national accounts. So I was just curious if you can share an update and how we should mentally think about a realistic set of outcomes here.
spk13: Well, it's, listen, we're, you know, negotiating for the benefit of, you know, our shareholders. They're negotiating for the benefit of their shareholders. And a lot of these things we have, what I'll say, handshakes, and it's a process of being papered. So you should feel good that there's no, There's no smoking gun. There's nothing there that's going to lead to a fallout. It's just a process. And renewals are going. We're, in fact, ahead of our 23 renewals now compared to where we were last year. But some of the 22s, and in some cases because 22s took so long and we're doing 23s, So together, it's a process, but it's going well and relationships are progressing appropriately.
spk32: Okay, and just one quick one. Where should we expect your portfolio occupancy to end up by the end of this year?
spk13: 23, slightly up. Slightly up. I don't have the number, but Brian may have it for you later. Okay. Okay, last one. I guess we're over at six, but we have one more question, and we want to finish the Q&A.
spk30: Yep, and our final question comes from the line of Linda Skye. Jeffrey, please proceed with your question.
spk34: Hi, thanks a lot for taking my question. On the guidance, the range you provide is based on comparable FFO per share. In the coming quarters, when you have a better sense of mark-to-market gains or losses, will you also show guidance for estimated diluted per share for the full year like you did in prior quarters?
spk13: Yeah, well, we're hopeful. You know, last, you mean our mark-to-market equity investments?
spk36: Yes.
spk13: Yeah, sure. I mean, we outline it. We separate it. You know, we'll do comparable and real numbers. So you'll see both. Hopefully, it'll only be up But, you know, last year we did take a reported FFO number. What was the share number? Eight cents. Eight cents. But we outlined those for you, Linda, so you'll see them both.
spk23: Great. Thanks a lot.
spk30: Thank you. And we have reached the end of the question and answer session. I'll now turn the call back over to David Simon for closed remarks.
spk13: Thank you, and again, I'm sure there are a lot more detailed questions. Please call Brian and Tom, and they'll be happy to walk you through more details. Thank you.
spk30: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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