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spk15: Greetings and welcome to the Simon's first quarter 2023 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 and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tom Ward, the SVP of Investor Relations. Thank you, and you may proceed, sir.
spk16: Thank you, Claudia, and 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 filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to one hour. For those who would like to participate in the question and answer session, we ask that you please respect our request to limit yourself to one question. I'm pleased to introduce David Simon.
spk02: Thank you, good afternoon, and I'm pleased to report our first quarter results. We are off to a good start with results that exceeded our plan. First quarter funds from operation were $1.03 billion, or $2.74 per share. Let me walk through some variances for this quarter compared to Q1 of 2022. Domestic operations had a very good quarter and contributed 15 cents of growth, primarily driven by higher rental income. Our international operations also performed well and contributed two cents of growth. These positive contributions were partially offset by declines from the headwind from a strong U.S. dollar of two cents, higher interest rate expense, of $0.05, lower lease settlement income of $0.06 compared to Q1 of 2022, and we had a mark-to-market gain on publicly held securities of $0.06 for the quarter, and a $0.13 lower contribution from our other platform investments compared to Q1 2022. Let me walk you through some of that. and remind everyone that for OPI results, we are generally on our plan. Please keep in mind, OPI was up against very tough comparisons from last year's Q1. This quarter also includes one-time transaction costs from ABG's recent acquisition activity, JC Penney's deployment of their new beauty initiative, and investments related to physical stores, IT, and one-time reorganization expenses, all flowing through our FFO number. The retailer part of our OPI investments has seasonality associated with it, generally with losses in the first quarter and the majority of our profit in the fourth quarter and should be modeled accordingly. Overall, we continue to expect OPI to meet our 2023 guidance we provided at the beginning of the year, which is similar, which will be a similar FFO contribution that was compared to 2022. Now, domestic property NOI increased 4% year over year for the quarter. Portfolio NOI, which includes our international properties at constant currency grew 3.9% for the quarter. Our mills, malls, and outlet occupancy at the end of the first quarter was 94.4%, an increase of 110 basis points compared to the prior year. Mills was 97.3%, and TRG was 93.3%. Importantly, average base minimum rent was $55.84 per square foot, an increase of 3.1% year over year. Leasing momentum continued across the portfolio. We signed more than 1,200 leases for more than 5.9 million square feet in the quarter. We have an additional 1,500 deals in our pipeline, including renewals for approximately $570 million in gross occupancy cost. More than 25% of our leasing activity in the first quarter was new deal volume. We're seeing strong broad-based demand from the retail community, including continued strength from many categories. By the end of the second quarter, we expect to be approximately 75% complete with our 2023 expiration. Retail sales momentum continued. Reported retail sales per square foot reached another record in the first quarter at $759 per square foot, for malls and premium outlets combined, an increase of 3.3%. All platforms achieved record sales level, including the mills at $6.83 a foot, a 2.2%, and PRG was $1,100 per square foot, a 6% increase. Good news is tourism is returning with our tourist-oriented centers outperforming The portfolio average in terms of sales, our occupancy cost at the end of the first quarter was 12%. We opened our West Paris designer outlet in Normandy, France last week. Our 35th international outlet center during the quarter construction restarted on our upscale outlet center in Tulsa, Oklahoma, which will now open in the fall of 2024. We have several densification projects under construction and a pipeline of identified projects that includes approximately 2,000 residential units and hotel rooms. Now turning to the balance sheet, we completed a dual tranche U.S. senior notes offering that totaled $1.3 billion at a combined average term of 20 years at an average coupon of 5.67%. We close on our new $5 billion multi-currency revolving credit facility with a maturity in 2028. Importantly, the pricing's unchanged from our prior facility. The traditional secured mortgage markets continue to support the refinancing of our assets across geographies and property types. Our A-rated balance sheet is as strong as ever. We ended the quarter with $9.3 billion of liquidity. Today we announced our dividend of $1.85 per share for the second quarter, a year-over-year increase of 9%. The dividend is payable on June 30th of this quarter. Guidance for this quarter, given the results of this quarter and our current view of the remainder of the year, we are increasing our full year 2023 guidance range from $11.70 to $11.95 per share to $11.80 to $11.95, $11.95 per share compared to last year of $11.87. This is an increase of 10 cents at the bottom end of the range and 5 cents at the midpoint. Excuse me. And I'm pleased with our first quarter results. Tenant demand is excellent and brick and mortar stores are where shoppers want to be. And even with the economic uncertainty, we are running ahead of our internal plan. Excuse me. Here I have some kind of frog in my throat, but we're ready.
spk15: Thank you very much, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. Please ensure to limit your question to just one question per analyst. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from from Goldman Sachs. Please proceed with your question, .
spk01: Hi. Good evening, everyone. Maybe regarding upcoming lease maturities and what that means for potential cash flow changes going forward, The ABR for 23 maturities is around $62 versus the portfolio overall at $56. So do you think it's fair to say that the rest of the 23 maturities may face a headwind on renewal, but then the 24 maturities, which are 12% of rents and have an ABR of $54, have significant opportunity? I'm guessing it's not that straightforward, so wondering if you could discuss that rent maturity and mark-to-market outlook.
spk02: Yes. Thank you, Caitlin, for the question. One of the numbers I threw out there while I was coughing during my presentation was, you know, our renewals and new leases will add $570 million of basically gross rental income. In that is included some renewals, which is the roll-off of some of the numbers that you quoted. overall above our expiring rents. So even with that said, we expect to continue to have positive rental spreads even with the higher number for the balance of this year and certainly in 24. So the outlook on that front is very positive and unchanged since our commentary certainly at the beginning of this year and fourth quarter of last year as well.
spk01: Okay, thanks.
spk15: Thank you. The next question comes from Steve Sackler from Ivercore ISI. Please proceed with your question, Steve.
spk08: Yeah, thanks. Good evening, David. I was wondering if you could just maybe shed a little more light on the leasing demand that you're seeing. Is there anything that you could discuss with us on kind of price point, either luxury versus more moderate tenants, anything by region, you know, anything by product type, whether it's, you know, the mills, the outlets, the traditional malls, you know, just looking for a little color given what we're going through and kind of what your tenants are telling you. Just kind of curious where the strongest demand is and maybe to the extent that there are any weak spots, you know, what would you call out?
spk02: Well, I mean, I know this is... kind of in the face of a lot of economic uncertainty, but demand really has not changed one iota. Now, let's talk about the luxury side. Clearly, they're running up against tough comps compared to Q1 of last year, but those brands and those companies think long-term, and I mean, the best example is if, you know, we were at the opening of the Tiffany store on 57th Street. You know, you have to take a long-term view when you open stores like that, and all of those brands, whether LVMH Group, Kaling, you know, Richemont, et cetera, they're looking at 23, 24, 25. We're making commitments. Nothing there is... is really abated so all systems go on that front even though they're running up against tough cops compared to q1 you look at the restaurant category very strong demand lots of new deals across you know lots of price points from you know pf chain pf chang's cheesecake factory to you know, some of the chef-driven brands, so all systems go there. You've got the box demand, lots of new business with Dick's, Lifetime Fitness, you know, the best of the best, you know, Shields, department store demand, Von Maurer is happening. Then you look at the athleisure, Viore, Aloe, Lululemon, all Brooks Brothers, all of that pretty much across the board, we're seeing new stores. I said this at the end of last year, early this year, even though comps are going to be tougher this year in terms of sales compared to last year, the demand on leasing really has not changed. We're seeing the entertainment concepts, um, you know, uh, come back theater businesses, positive. Um, so, uh, you know, we feel, you know, it's, it's, it's, we're feeling very good. You know, obviously we're cautious. Uh, we don't expect sales like they were over 21 and 22. And we planned accordingly, but, um, Demand, we check every day, and there's certainly a couple here or there that have slowed down, but nothing really noteworthy. VF, North Face, Timberland, Cotton On, they're all growing, and it's all pretty healthy.
spk08: Great. Thank you.
spk02: Thank you.
spk15: Thank you. The next question comes from Ronald Camden from Morgan Stanley. Please proceed with your question, Ronald.
spk14: Great, thanks. I remember last quarter we talked about domestic property NOI growth of at least 2%. And you're thinking about looking at 1, 2 already at 4. Just maybe can you give us an update how you're thinking about that number for the rest of the year? And looking at the guidance raised, How much is that property, core property in a Y versus maybe other factors? Thanks.
spk02: Sure. Yeah, we're going to beat 2%. And, you know, I would hope we would do, you know, at least three plus. I mean, there is some, you know, it's very interesting. The first six months from a retail point of view, COPS will be tough. But we think the second half for the retailers is, will be more positive, lots of economic uncertainty out there with the big macro things, but assuming sales come in the way we initially budgeted, we should be hopefully at least 3%. If we have an uptick in sales, we'll do better.
spk13: Thank you. Thank you.
spk15: Thank you. The next question comes from Alexander Goldfarb from Piper Sandler. Please proceed with your question, Alexander.
spk05: Thanks, and good evening, David. How are you? I'm doing well. So first, thank you for all the detail on the retailer platform and the emphasis on the seasonality. That's helpful. My question is bigger. You guys seem to have a lot of positive trends with the redevelopment program coming back, retailer demand healthy. Obviously, some of your competitors are having trouble on the capital side. It strengthens your portfolio. So my question is, as you look over the next few years to invest incremental capital, is your focus still on the best returns are internal in your existing malls and adding more densification? Or are you starting to see some external opportunities where it may make sense to use capital and whether that's domestically or abroad, uh, you know, sort of curious.
spk02: Yeah, I, I don't see, let me do it in pieces with, um, you know, no particular order. I do see, I still do feel strongly that the best, um, use of our capital is making our existing portfolio better and better. I think, um, That's, you know, we have spent, you know, eight plus billion dollars over the last several years upgrading the portfolio and doing new development. So we continue to see that as our best use. I don't see, and as I mentioned in the call, we have a residential pipeline that looks really attractive and hotels, that are generating really good accretive values of around 2,000 units. Now, that's not going to happen overnight, but that's going to happen over the next few years. So that, to us, is a real opportunity. I don't see much of our external capital doing any kind of acquisition opportunities internationally. I still think we'll grow our international Asia outlet portfolio with redevelopment and new development over time, essentially recycling the capital, the cash flow that we have there in a creative new development. And, you know, we're looking at everything domestically here and nothing – really has with, I think I could say this with our whistle here to make us, I can say that, right? Okay. So nothing here that would, you said it. Uh, I said it true. Good point. Uh, nothing here that would really like, we're not jumping up and down to do external, you know, an external transaction. So it's mostly the same stuff that we've been doing. Um, you know, um, And, you know, just keep plugging away on that. And, look, I do think we have to respect the capital markets. You know, the capital markets are telling all companies to be more prudent, to do more creative investments, and we are listening very closely to that.
spk05: Okay. Thank you.
spk02: Thank you.
spk15: Thank you. The next question comes from Vince Tivoni from Green Street. Please proceed with your question, Vince.
spk06: Hi, good afternoon. I wanted to follow up on your comment regarding the 2,000 residential and hotel units in the upcoming pipeline. Just curious how quickly you could start these projects, how much spend this could potentially represent, and if this is something that you're going to maybe do through joint ventures or would be wholly owned on the balance sheet, any color on some of these points would be helpful.
spk02: Sure. All right, so I think we will do selective JVs on certain of the residential development. And it also may be that we could potentially bring in third-party equity, too. So that would... You know, we'll look at each deal individually, but that's certainly a possibility. And then I think, essentially, we're looking at, you know, to reach all those 2,000 units, it's really probably a five-year build process. We expect to start several this year, but yet we're, you know, frankly being a little bit cautious. We're, you know, We're still permitting some things in California and, you know, the Northwest. So we don't, you know, we're going to just see how the world is, but we don't have to make a decision yet. And I would think at the end of the day, you know, off the top, you know, I'd rather Brian give you a more, scientific number because a lot of these are part of redevelopments too. And so to really isolate the hotel, apartment, or rental stuff, I'd want to give you a number. But my instinct would be probably about a billion and a half dollars. But I think Brian can give you a more detailed number, but somewhere in that range. And these go from Austin, Texas to Orange County, California to Seattle some hotels in Florida, some residential in Florida, multifamily. So it's kind of where you'd expect it to be, where supply and demand is in our favor. But, you know, we're considering building a hotel in Cape Cod, you know, because we think there's a good supply-demand imbalance there. So it really is, you know, across. And every... I'd say generally as we get back real estate through our redevelopment efforts, the big focus is on where we can add some mixed uses because we do think like what we did in Buckhead is having a tremendous impact on the overall value of that real estate. Not only is it accretive from a value point of view just on the cost to the return on the build versus what the value of that is after it's built, but also the residual benefits that we see from them all.
spk06: Got another. That's all super helpful. And then somewhat related follow-up question. Just curious if you could share any updates on the Carson outlet project and if you think you'd be moving forward there in the near term.
spk02: That's a complicated one. That's a complicated one, but every day we make progress. So it's terrific real estate, very complicated transaction, but we continue to make progress. But no final decision has been made to do it. But I expect one to be made over the next few months. Great. Thank you. Thank you.
spk15: Thank you. The next question comes from Craig Mailman from Citi. Please proceed with your question, Craig.
spk20: Thanks. It's actually Nick Josephong here with Craig. David, just on executive comp and the $24 million one-time cash bonus related to OPI, I know at least one of the proxy analysis firms has raised some concerns on it. So I was hoping you could give some more color on the bulk of the rationale behind it in terms of the amount and the structure of it ahead of the vote later this week.
spk02: Yeah, look, I think, you know, this was pretty, you know, essentially paid 23, 24 executives last February, so about 15 months ago, fully disclosed in an 8K. Our rationale and reasoning by the comp committee was fully disclosed in our file proxy, as well as a supplemental letter to our shareholders. You know, I think... you know, if you look at the company in totality, which is important, I mean, we can always pick a moment in time to say, you know, why this, why that, but if you look at the history of the company, you look at executive comp, you look at our stock program, you look at our burn rate, you look at our GNA as a function of our NOI or asset value, We are at the lowest of the low. Anybody can pick out, you know, one particular number they don't like. But if you look at it in totality, you know, we are absolutely proud of, you know, how we run this business. If you want to get more detail, I encourage you to talk to the head of our comp committee, our lead independent director, any shareholder can do that. But I would encourage everyone to look at the totality of our history and then come to whatever conclusion they think. And we're very happy to talk to anybody that would like to go through it from a shareholder point of view. Thank you. Thank you.
spk15: Thank you. The next question comes from Greg McGinnis from Scotiabank. Please proceed with your question, Greg.
spk00: Hey, good evening, David. I just want to make sure that I understand that $570 million gross rental income number that you mentioned. Is that new and renewal leases? Is it on a pro rata basis, inclusive of international and DRG leases? How much of that, I guess, is incremental to in-place rents, or is all of it? And then what's the time frame that you have to be contributing?
spk02: Yeah, all terrific questions. And, you know, we highlighted that just to give you a sense of the scope of the business that's going on here. So that's a huge number. That's just one lease number. you know, one level of activity in a year, and it's bigger than some companies that, you know, that exist today. So let me try to unpack it. It does include renewals. It's just FPG. It's just domestic. And if you look at the renewals in the new business, there's a really good uptick from kind of the in-place income on that. And that will come in not really this year, but over 24 and 25 as those stores get open. And I think it just adds a sense of our future growth that we see in front of us from our existing portfolio. But I'm not in a position to break it out between renewals and new incremental business, you'll see that flow through the NOI in the upcoming quarters.
spk00: Okay, so it is both, though, because you mentioned $100 million of new income last quarter, of new NOI.
spk02: Correct. It includes both, correct. Thank you. Thank you.
spk15: Thank you. The next question comes from Derek Johnson from Deutsche Bank. Please go ahead with your question, Derek.
spk09: Hi, everyone. Good afternoon. Occupancy is now at 94.4%, and that's just 70 bps below pre-pandemic levels. Do you expect to surpass 4Q19's 95.1% occupancy this year? And given the leasing demand we've discussed, how is the team weighing occupancy versus rates now that the gap is so narrow?
spk02: Well, let me take that part first. I do think, you know, the good news is that when we're, you know, and again, every lease is different, every relationship's different, you know, rollovers, you know, some rollovers go down, but I would say, generally speaking, we are finally seeing renewals that are overall above the expiring rents. So that, and part of that is just supply demand is in our favor and we are getting, because one is, I think from the retailer's point of view, there's a real appreciation for bricks and mortar. One, two is they know we're a landlord that they can rely on and that we're going to do the right thing to maintain and reinvest in these properties and we have the capability of doing so. Generally, it's more demand that we're seeing. The retailers are in having survived COVID are in better shape and want to grow their business. That is all happening. Getting to your First point, will we beat it this year? It'll be close. I can't guarantee it, but I am hopeful that we will beat that number, certainly within the next 12 months, assuming we can continue to maintain reasonably decent economic conditions.
spk09: All right, thank you.
spk02: Thank you.
spk15: The next question comes from Floris from CompassPoint. Please proceed with your question, Floris.
spk11: Thanks. Good evening, guys. David, so maybe if you can give us a little bit more of an update. I know in the past you've talked about your signed non-open pipeline being around 200 basis points. Your leased occupancy just increased by 110 basis points. Is that S&O pipeline relatively similar? And then maybe, I mean, if I look at the base rent going up by 3.1% approximately, and if you get about 10% of your space back, I mean, it assumes pretty healthy releasing spreads, if my math is correct. I mean, how should we be thinking? It appears that leasing spreads are accelerating in your core business.
spk02: I think that's a fair statement, and I would say that The pipeline is similar to what it's been.
spk03: We're still hanging right around 200 basis points at this point in the year.
spk02: I do think, as we've been saying over the last couple quarters, we have finally turned a corner on... lease spreads, demand, better properties, more commitments from retailers, and more retailers wanting to open stores, all driving pretty good demand, which allows us to get the spreads that we were accustomed to, but we were flatlining pre-COVID. Obviously, we got We got hurt during COVID, and we bounced back nicely. So from that standpoint, it's good to see.
spk11: And if I can maybe follow up, David, on Jamestown, and you mentioned external capital. How are you thinking about – how is the Jamestown acquisition betting in, and is that potentially – a source of external capital that you can bring into some of the apartment or hotel investments? And or how are the synergies between those two businesses working out? In particular, I'm thinking like Atlanta with the street retail right near your two fortress malls.
spk02: Yeah, look, to separate, just to be clear, so We bought into the asset management business and we partnered with Jamestown for a couple of, you know, several reasons, but a couple to highlight here. One is they're, you know, really good asset managers. Two is they have a development capability that's very interesting to us and they have excellent institutional relationships. and we think with our partnership we can grow that business. We did not, other than there is a big future development, master plan development that they're working on in Charleston where we did partner with them directly. We did not buy any of their existing real estate that's owned by you know, the various funds, whether it's the German funds or the, you know, or the premier fund. Jamestown is in the process of raising their, what, 32nd German fund. They have a lot of separate account interest. It's really good for us because we get to learn those institutional investors better and more, and I just think we're early days there, but I think the thesis that we had going in continues to be very, very valid. This is a long-term relationship that I think will grow. Eventually, I see us partnering with institutional money that will be managed by Jamestown that will partner with us to build XYZ or buy XYZ or build a big community in Charleston, North Charleston. So yeah, I think all of the elements of potential growth with Jamestown are out there. We do like the asset management business as a platform. We dipped our toe into it, but I think You know, again, just as we look at the landscape of real estate owners and managers, we think, you know, when we look at a Blackstone, when we look at a Brookfield, you know, obviously they own, they asset manage. For us to have some scale or some role in that business, I think ultimately will inure to the benefit of Simon Property Group, and that's what we're after.
spk11: Thanks, David.
spk02: Thank you.
spk15: The next question comes from Craig Schmidt from Bank of America. Please proceed with your question, Craig.
spk18: Thank you. Given the seasonality of the OPI business, which quarter do you expect that number to turn positive?
spk02: I think it will be, you know, Craig, you know about retailers. So just to reinforce that, the retail part of OPI. Remember, the vast majority of the OPI value is in our ABG stock. But we still have a very profitable business with both Penny and Spark, and then other investments that are in that, including RGG and so on. So just important to put it in context. So the retail part, the pure retailer part, Penny and Spark, it's seasonal. You know, last quarter, Q1 of 22 was, you know, just, you know, stimulus, whatever, was a really tough comparison for the retail, retailer part of OPI. With that said, it will... We expect it to be profitable in Q2 and Q3, but the vast majority of it will be Q4 like all the other retailers. So when you see retailers report this quarter that are public, I think generally you'll probably all have tough cops against Q1 of last year, yet the cops get a lot easier. Now, this is a lot more information for a business that we have no cash investment, remember, and it does create a little volatility of our earnings, you know, for better or worse. In this case, this quarter it's worse. Fourth quarter will be much better. It does create a little volatility, but, you know, you'll see it map out part of that OPI map out just like other retailers do. where the loss will be in Q1, profitability in Q2 and 3, and then, you know, 70%, 55%, 70% in Q4. Thank you. Thank you.
spk15: The next question comes from Juan Sanabria from BMO Capital Markets. Please proceed with your question, Juan.
spk19: Hi, good afternoon. Just hoping to get a little color on the month-to-month leases. They picked up from about 4.5% to 7.5% sequentially in the first quarter while you did a fantastic job chopping wood and reducing the rest of the 23 expirations. But just curious on why the increase in the month-to-month leases and what's going on behind that.
spk02: Yeah, one of the comments I made was we expect to be basically 75% by the end of Q2. It's just a process. It's just, you know, we're negotiating. The retailers are negotiating. You know, the stores are open and operating. But, you know, it's just a typical drawn-out process that, you know, is the, so to speak, the art of the negotiation. But a lot of that's, already handshake committed to that we're just going through and processing now.
spk03: If you look at the normal seasonality of that line item at this point in time in the year.
spk19: Great. That was my follow-up. Thank you.
spk15: Thank you. The next question comes from Mike Muller from JP Morgan. Please proceed with your question, Mike.
spk07: Thanks. I was wondering, has there been any notable change in lease duration for what you're signing so far in 2023 compared to last year?
spk02: Not really. Not at all.
spk07: Okay. That was it. Thank you. Thank you.
spk15: Thank you. The next question comes from Handel Giester from Mizzou. Please proceed with your question.
spk10: Hey, good evening. Dave, I think earlier you mentioned that new leases were 25% of deal volume in the first quarter. I guess I'm curious if that's why CapEx picked up 8% in the quarter, and if this is also a new versus renewal leasing that you should expect in the near term. Thanks.
spk02: We have a tough connection. Did you guys hear that? Can you repeat your question, please? You kind of broke up a bit.
spk10: Sorry about that. So my question was on, David, I think you mentioned earlier in the call that new leases were 25% of the deal volume in the first quarter. So I'm curious if that's why CapEx was up, I think, 8% in the first quarter. And also if this level of new leases, 25% or so, would be kind of the right way to think about new versus renewal leasing going forward. Thanks.
spk02: Yeah, I think, I guess on the TA line, there is some, we are doing more deals, so there is probably more TA associated with it. So I'm not sure, you know, the CapEx line or you're looking at the TA line, but generally the answer is yes, we're doing a lot more new business. And in some cases that does mean a little bit more TA. And I still had a hard time on the last part. Did anybody hear it? No, we didn't hear it. Unfortunately, we didn't hear it. But if you want to call back with, you know, we're happy to answer that.
spk13: Thank you. Moving on to the next question.
spk15: The next question comes from Kim from Tourist. Please proceed with your question.
spk04: Thanks. Good afternoon. Going back to your comments on international tourism, David, can you remind us where international tourism levels are for your portfolio today versus, let's say, pre-COVID? And if it should return to that normal level, what does that mean for Simon's time in NOI or earnings, however you want to look at it.
spk02: Well, I would say generally speaking, just to give you a sense, our sales for our tourist properties that we identified was up 8% quarter over quarter, right, generally? Yep. So the bottom line is it's really going to result in overage rent that we've probably flatlined, more or less, on those properties. And that will manifest itself once we reach the break point, so later in the year. But we're starting to see, I mean, like Vegas, where are our tourist properties? Florida, which has been pretty strong, but we're seeing more and more international tourism there. Woodbury. Here in the New York area, I say here, I'm in Indianapolis, but, you know, in the New York area is really starting to see a lot more international tourism. California has been kind of the weak link, but we're starting to see more and more sales there. And then Vegas is just going crazy. Vegas... You know, we have really important exposure in Vegas between Forum, Crystal, our two outlet centers. Vegas is as good as it gets. It's the casinos, what's going on with the city, the movement from California to Nevada, all of the football, baseball, sporting activity, Formula One. It's just... It's a great place to have, you know, a lot of retail real estate, and we're seeing real benefits in that. So this will manifest itself in the fourth quarter as we're, you know, as we're seeing that, but, you know, as we reach the break points, but we're finally seeing the international tourists come back to the states. A little weaker dollar helps, and obviously all the, I think finally you don't have a vaccine card or whatever it's required to come here. All of that kind of yesterday's news as of today or yesterday. So, um, we're, we're, you know, I think we're finally starting to see that, uh, uh, that come back like it was pretty pandemic.
spk04: Okay. And the quick question for Brian. You guys have a pretty healthy cash balance of over a billion dollars, yet you're still carrying a balance in the revolver. I'm sure there's a pretty logical, simple answer to this, but just curious.
spk03: Yeah, that's exactly right. The outstandings on our revolver are denominated in euros, and they serve as a net investment hedge against our asset base in Europe. We do have a heavy sizable cash balance as we did our offering earlier in this year and pre-funded the balance of our unsecured maturities for this year. So we're carrying cash and we'll pay off the June maturities at par at maturity. Okay, thank you. Sure.
spk15: Thank you. The next question comes from Michael Goldsmith from UBS. Please proceed with your question, Michael.
spk17: Good afternoon. Thanks a lot for taking my question. David, your base minimum rent growth is accelerating. You have a nice S&O pipeline. You're talking about blowing past your 2% NOI growth guidance for the year. All sounds great. I guess the question is, how sustainable is this algorithm? How long can it continue? And what are the factors that are ultimately going to weigh on this momentum that you have?
spk02: Well, look, I mean, I think... I see it continuing. We see good demand. We are tied to the general economic condition, but supply and demand is in our favor. I think our spot in our industry is well established. We have the confidence with our retail partners. We know what we want to do with our properties. We're not, you know, we don't bat a thousand. We, you know, we make mistakes all the time, but, you know, we know where we want to position them. And, you know, so I hate using kind of this, but I, you know, it's really going to be the external environment that could slow this down, meaning, you know, You know, what happens, you know, do we do a recession or that? And I honestly think some of these markets are, you know, when people ask me that, I actually think if we do go into a recession, it'll be, you know, quote, this kind of regional recession. I just don't see markets right now. They may flatten, they may not grow as much, but I don't see Florida's, Texas, Nevada's of the world, you know, Georgia's, I just don't see them slowing. I don't see them going into a recession. So if there is one, you know, it, you know, we've always heard, well, you know, it's going to be a regional one. This one might be one, but you know, who, why did I really don't know, but I think that's what slows us down. Obviously we do have some headwinds with higher interest rates. You know, we do, we do have, You know, debt maturity at low rates that will roll over will cost us some growth. You know, but we just have to kind of go through that and deal with it. Thank you very much. Thank you.
spk15: The next question comes from Linda Tsai from Jefferies. Please proceed with your question, Linda.
spk12: Hi. How do you think about the longer-term growth profile of the OPI business versus growth in overall portfolio NOI? You know, do you think the OPI business requires more consistent investment before it generates more stable returns?
spk02: Well, I think you have to look at the individual investments and, you know, like, for instance, Authentic Brands Group is a growth machine. They're buying brands Left and right, they're buying Billabong, they're buying Vince. They've got a huge pipeline, so I really see that company growing, growing, growing. Spark and Penny are, you know, Spark is opening new stores, getting better at e-commerce, getting better operating. I'm sure over, you know, they added Reebok. to its portfolio last year. That still hasn't been fully integrated. So, you know, I expect EBITDA growth to accelerate in the latter half of 23 and 24. You know, RGG, which includes Rue La La, Gilt, and importantly, Shop Premium Outlets. Remember, we contributed that to that joint venture. Shop Premium Outlet is on fire. We're growing our GMV by leaps and bounds. I really think this was an idea we had years ago. We kind of got it off the ground, maybe not quite as good as Wilbur Wright, but we got it off the ground. We merged it into RGG. And it's really rocking and rolling. We're signing up good retailers all the time. That's got a great story to it. And we have some smaller investments in that. So I think I see a real growth pattern in all of those. Penny is reinvesting. I think Penny has found its mojo. It's getting better brands in the store. We're making the stores look better. It's got growth and beauty that's investing. So, you know, the retailer side of OPI has a little more exposure to the economy because, you know, retail just does. But I think they all, in their own right, have their own growth story. But you know what? You know, we're economic... animals to the extent that we think we get fair value. You know, we've got lots of opportunities to invest in our company or other transactions that will add value. So, you know, we look at these very clinically. And, you know, and I just remember we've created a lot of value here with very little capital. And, you know, what's amazing, it's in our earnings now, and, you know, which is a good sign because it means it's earning money. And given the small investment, it's been, you know, if you just want to look at return on, you know, return on earnings or return on investment, it's been outstanding. So very proud of it. Very profitable. not our core focus yet. We'll use the executive team here to leverage our capabilities, intellectual firepower, et cetera, to make those companies better. I think we've done a pretty darn good job. We've had good partners across the board, so we've done it in a very prudent way. It's been very... beneficial for us and I expect growth to continue you know have more ups and downs won't be a straight line but I have I expect more growth from that category same time you know ten years from now five years from now we don't have to own any of these companies thanks for that and then just a follow-up do you have a sense of how much mixed-use development could become as a percentage of portfolio NOI
spk12: Could you give us a sense of what that might represent today?
spk02: It's not very big today. What is it, like 3%, 4%? Yeah, about 3%. So, you know, we're a big company, so to do a lot, to get to like, you know, 8 to 10 would take a lot, would be a few years down the road. But I don't see any reason why, you know, we certainly should, should try to strive to get up there if we can do it accretively in the kind of the 7, 8% range. But that would be roughly $500 plus million of NOI. So it's not, it's gonna take time. Thank you. Thank you.
spk15: Thank you. The next question, the final question, comes from Handel Giester from Mizzou. Please proceed with your question.
spk10: Hey there. Thanks for letting me back in. I wanted to get to the second part of my question, and then I have one more. So the second part of my earlier question was if you're expecting new lease volume to be about 25% of the overall leasing volume as they were in the first quarter over the near term.
spk02: Yeah, I think that's a reasonable number, yes. In that range.
spk10: Okay, sure. Okay. And then the second question I had was on foot traffic. We saw some recent placer foot traffic data from March indicating that year-over-year foot traffic at enclosed retail malls is down 8% year-over-year in March. I'm curious if you're seeing similar trends at your properties and if you think that's a reflection of the consumer and if that's coming up in lease negotiations in the current environment. Thanks.
spk02: Well, yeah, I'm glad you asked that because I have, you know, we keep track of that ourselves. And just to give you March over March, 23 over March of 22, we are 105.5% for malls, 105.6% for mills, and 120.2% for outlets, for 108% above last year this time. In January and February, we're actually much higher month over month so we for our portfolio we're above traffic is above where it was this time last year year to date month to month okay thank you thank you thank you thank you very much there are no further questions at this time I would like to turn the floor back over to David Simon for closing remarks thank you sir Okay, thank you, and appreciate the questions, and we'll talk soon. Thank you.
spk15: Thank you very much, sir. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you very much for your participation.
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