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spk18: Well, I think it's all of the likely suspects. It's lease up. It's renewal spreads. It's new business. Obviously, it's overage or percent sales and sales activity. So there's nothing new there. I mean, it's all the stuff that has allowed us to grow our comp NOI over a long period of time through a lot of volatility, COVID-19. recession, you know, real estate recessions, e-commerce, proliferation of this, that, and the other. So it's all of those likely suspects. I mean, I think we feel, you know, generally positive about our comp, our ability to grow comp NOI, but it's all the likely suspects and it's all the same, you know, metrics that we have to, we have to produce to generate that. And, you know, we still have the ability, even as we get up to 95%, uh, thereabouts, we still have the ability to, you know, which we can't lose sight of. We have the ability to replace, um, retailers with, with, with better ones that will in, you know, uh, just common sense, we'll be able to pay higher rent because they'll be more productive. Um, it's really that simple. So, um, But, Ron, it's all the same stuff, and, you know, we're focused on hitting all of those cylinders, certainly to finish this year, but also in 24-25. And, you know, the added benefit that we have in 24-25 is that we've, you know, got a lot in the pipeline that will finally open.
spk02: Helpful. Thank you. Sure.
spk34: Thank you. And our next question comes from the line of Flores Van Dijkum with CompassPoint. Please proceed with your question.
spk32: Thanks. Hey, good afternoon, guys. Unfortunately, I have to limit it to one, so I won't focus on the less important OPI stuff. But maybe if you can talk a little bit more about the 200 basis points of sign not open, presumably that's higher in your more portfolio than your outlets. And maybe if you could also quantify in terms of dollar amount or NOI impact, I know that a lot of those leases and that S&O, there's a lot of luxury tenants, which typically pay significantly higher rent. So presumably it has a greater impact on your portfolio. on your NOI and ABR than the percentage just in terms of occupancy?
spk18: Look, we don't want to get into that level of detail. We certainly will for 24 as we outline what our comp NOI growth is. But you're 100% right that it is much easier and quicker to open an outlet store, the build-out can be anywhere between 30 and 90 days, and the mall generally can be six months plus. And then when you get to complicated tenants or, you know, where the build-out is expensive, you're talking nine months plus restaurants in that area. So, but we do, you know, and it goes back to, I think, Flores, you were one of the original Analyst that was very focused on when we're going to get back to 19 levels and You know, I'm happy to say that we will be back. We better be back. Okay, but we will be back in There in In 24 and a lot of that really at the end of this year we annualize it so You know, it really is a function of getting those retailers open. But the specific numbers, I mean, if the guys want to talk offline and go through it, I'm certainly happy to do that. But I think it's better answered as we go through 24, our Comp NOI plan with you, you know, early next year.
spk23: Thanks, David. Sure. Sure.
spk34: Thank you. And our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.
spk28: Great. Good afternoon. Follow-up question, David, on your comment on potentially allocating money for investments into other assets. I mean, you've been doing that really since the world financial crisis, investing in the best properties. You've been densifying assets with apartments, etc., Is there anything else that you're thinking of changing that you've noticed a change, let's say, between the difference in the assets you own or what you're seeing out in the retail landscape, or you're really sticking with those programs as well?
spk18: I think, Jeff, we're going to more or less stick to our programs, but of what we've done historically, I think it's been the right strategy. We'll knick and knack. We've had good experience by and large. Not perfect, but good experience experimenting here and there. Our core business is high quality retail real estate. We're not moving away from that by any stretch of the imagination. We have lots of levers in that category to pull in terms of how we want to allocate capital. Do we want to put it more here versus there? Do we want to sell this and reinvest that? I think that if I had the ability to express it, we think about that all of the time. We never really talk about it, but the sole purpose of going through that asset rotation was to tell you that we do think about this stuff all the time, and beyond just think about it, we actually do stuff about it. So, and, you know, sometimes communicating that to investors and analysts is important to know that we're, you know, we're going to reallocate capital where we think the growth is, and we're not afraid to, you know, to sell or buy or hold or whatever, you know, whatever kind of we think is the right thing to do. So that's really it. I wouldn't make, you know, this is not like we're not trying to, like, here we go, something's big around the corner. It's just, you know, we've done this, and, you know, we just wanted to point it out.
spk41: Great. Thank you.
spk18: Sure. Sure.
spk34: Thank you. And our next question comes from the line of Mike Mueller with JP Morgan. Please proceed with your question.
spk24: Yeah, hi. Can you give us a sense as to how rent spreads compare when you move from the mall and outlet portfolio to TRG to the mills?
spk18: Well, I don't want to really talk about TRG so much, but I would say... You know, the spreads are, when you look at mills, outlets, and malls, it's all pretty decent. We still see, you know, our occupancy cost now is around 12%, right? So, you know, we're feeling better about our ability to generate positive rent spreads it's not always going to happen on every space in in every mall or outlet but we're seeing it pretty much across the board and as again i would say to you from you know what might shift is um you know we're starting we're you know where i thought our Outlet business was a little slower coming out of COVID. We're seeing a much better pickup over the last year or so there. And so we're optimistic that that's going to continue as well.
spk12: Okay. Thank you.
spk18: Sure.
spk34: Thank you. And our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your questions.
spk09: Good afternoon. Thanks a lot for taking my question. In your opening remarks, you talked about the deals in the pipeline and that 30% of lease activity in the first half was new deal volume. How does that compare to the past, and what does this indicate? Does this indicate that there is greater interest for new concepts that are interested in leasing, or is there some other meanings? behind this data point that you provided. Thank you.
spk18: I just think it most importantly reinforces the importance of our product and it reinforces how retailers feel about the mall and the outlet business. It's a great sign. I mean, it's a great sign that we have new concepts. And I would say generally that 30% has really developed over the last, you know, say 18 months. And whether it's direct to consumer, whether it's, you know, the luxury, whether it's a restaurant business, whether it's entertainment, we're seeing entertainment pick up. like we did pre-COVID. I think it's a testament to the product. The new retailers that want to open new stores in our existing product is a great sign and a great testament. That level is certainly much higher than I've seen since You know, I mean, it goes, I'm going to say almost seven, eight years because, you know, the 20, you know, 2020, I'm sorry, 2019, we probably didn't have that level of percentage of new tenants. So it's clearly higher than it was in the 1918-17 level. And it kind of goes back to where we were in the 14, 15, 16 level. So it's a good sign for sure.
spk40: Thank you.
spk34: Thank you. And our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
spk25: Hi, good afternoon. Two-part question. One, it looks like there's a 10 or 11 cent... gain in the P&L. Just curious if you could talk a little bit about what that is and if that was assumed in the guidance, the prior guidance. And then secondly, if you have any comments on the prior quarters comments on domestic property NOI of at least 3%. Thank you.
spk18: Let me... No, no, no, I know that, but what did you say, 2%? Oh, let me start there. So... Yeah, we're feeling very comfortable that we'll be above the 3%. The after-tax gain is associated with the ABG raising of capital, primary capital, which we get diluted down, so we have a dilution gain. After-tax, it was $0.07. Yeah.
spk10: Yeah, there's $0.03 of tax in the tax line, Michael, for that transaction.
spk25: Okay. And that wasn't in the prior guidance, I'm assuming, correct?
spk18: Well, we didn't. We, you know, I don't. We give a pretty big range and, you know, really wasn't in our guidance so much to speak because, you know, that's really out of our control.
spk01: Thank you.
spk34: Thank you. And our next question is from Greg McGinnis with Scotiabank. Please proceed with your question.
spk38: Hey, good afternoon. So a quick two-parter on Taliban for me. NOI was down 3% from last quarter while occupancy was up 40 basis points. Just curious what the drivers were of that decline. And then in line with your comments on asset recycling, can you remind us the process by which you would recapture the remaining 20% of that investment and whether you're you're planning to do so, or maybe that's one of the assets that you might be looking to recycle.
spk18: Well, I'm not going to comment on that. So there are puts and calls associated with Taupman over basically a five-year period. They have the right to kind of slowly put 20% of their interest to us. And then we eventually have a call associated with it. So that's that. And, Brian, why don't you go through the – it really was more of a function of kind of the percent rent or overage rent that they had in Q2 of last year. Yeah. But do you have any other comment on it?
spk10: Yeah, Greg, that's exactly what it was. You can see on a year-to-day basis we're still ahead, but they did have a higher percentage rent contribution in Q2 of last year than they did this year.
spk18: The other thing on Taubman, on TRG, so our FFO contribution this quarter versus last quarter is lower, and it's primarily three things. Number one is we've got D&O insurance reimbursement. in Q2 of 22 that's number one number two is we also had a land sale and then obviously number three is the higher interest expense so a little more exposure floating rate debt there and I think the spread difference between our FFO contribution from TRG to it to Q2 of 22 over 23 was how many cents?
spk17: Seven, something like that?
spk18: Seven cents. Okay, so I still remember numbers. So if you go through, so our FFO contribution from Taubman TRG, where we own 80%, was seven cents lower this quarter than Q2 of last quarter of 22. Okay, so that might be helpful to you. Those are the order of magnitude. If there's any details on that, you know, call Tom or Brian. But that's generally it. So we had a lower contribution. Is that the right number, Adam? Yeah. Okay. Thank you. That's the right number, so there's really not much to ask.
spk33: Okay. Thanks.
spk34: Thank you. And our next question comes from Handel St. Just with Mizuho. Please proceed with your question.
spk31: Hey, good evening out there.
spk18: We're not actually, to be technical, we're really not out there. We're actually in New York City today. So, you know, I know Indiana is considered out there, which, you know, I will not comment on, but we're actually right here. I don't know where you are, but we're right here in New York City.
spk29: I'm not too far from you. All right, cool.
spk30: So can you talk about the outlook for retail sales in the back half of the year, given the macro and the expiration of the student loan payments and what you think that'll do or impact that'll have on the business? And maybe some commentary also on year of the bad debt, how that's trending, and early thoughts on potential improvement on that line item in 2024. Thanks.
spk18: Yeah, I would say we're actually optimistic on the back half of this year because we're You know, comps or sales, I should say, in the second half of 22 really started to decelerate, you know, because of the, you know, obviously the increase in interest rates, gas prices, inflation. So I think across the board, our comps get easier for our retailers in the second half. So we're actually optimistic. And I think generally the economy, as we all know, is, you know, seems to, you know, relatively stable. Obviously it's a very uncertain world. So, you know, anything can happen. But we're actually optimistic on sales for the second half and expected to, you know, to comp up on, With respect to bad debt, we're not seeing, I mean, it continues to be lean and mean. And, you know, it's a little more than maybe last year, but it's like it's still comparatively historical lows.
spk27: Thank you. Thank you.
spk34: Thank you. And our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
spk36: Hi. Thanks for taking my question. In terms of 3% NOI growth, is that the level you think you could sustain next year?
spk16: I would hope so, yes.
spk05: Any color around that?
spk18: which is not one of my qualities, but that was the most succinct answer I've had all day. Did you have another question, Linda?
spk36: Sure. I guess on page 19, you also broke out mixed-use and franchise operations income and also the same line item for expense, maybe just a little more colorful.
spk18: Yeah, I think Brian and Tom felt because we're doing, and these are only consolidated assets. So, you know, we have a, we, we, we have a big franchise operation with Starbucks in terms of our, you know, our, our, you know, where we franchise some Starbucks location. Plus obviously we're building hotels and the, And it was all lumped into the other income, other expense, and we thought instead of having all the questions on why is this number growing and this number growing, we just felt like it would be better to separate it, believe it or not, for your benefit.
spk36: And then how do we model that going forward?
spk18: Look, I think the hotel business... um is pretty straightforward in that you know we're building it we have certain returns and i think um you you know we we pretty much outline our returns and our 8k so i think that's pretty you know obviously it takes time for apartments or hotels or any mixed use to you know to to stabilize but i think that that will be pretty easily At the end of the day, the Starbucks business is not even material. There's some profit embedded in there. We view it more as an amenity that we can make some margin on. It's grown a little bit bigger than what it was historically because we took over some of the operations during COVID. And so that's not an overly material number. And I, you know, we can kind of give you an order of magnitude of revenue and expense. The only problem this year, it really, some of these just came on board. So, you know, I'd say to you in 24 will be the kind of the first full year. And that will probably be, we can certainly outline what it is, but The net profit is not overly important. Does that help?
spk35: Yes, thanks.
spk14: Sure. Okay. Thank you.
spk34: And our next question comes from Craig Mailman with Citi. Please proceed with your question.
spk26: Good afternoon. David, just a quick clarification on one of the earlier questions about the $0.07 net gain. You know, you guys raised guidance here by $0.05 at the midpoint. Could you just run through if there are any other puts and takes that moved around with guidance this quarter where maybe this wasn't the sole driver, but maybe something operational and, you know, this could have offset something else. Just trying to get a sense that was this the reason guidance went up and had this not happened, you guys would have ended up kind of lowering the range here on the margins.
spk18: No, I mean, I think we're always pretty conservative. So, you know, we'll see how the, you know, we're always trying to beat and improve our numbers. I think we have as good a history of anybody to do that. And, again, we always, I know, It might frustrate folks, but, you know, there's always puts and takes in a company our size. I mean, we have $80 billion of assets. We're not a small strip center company that's got, you know, there's going to be some volatility. We've got a $3.5 billion asset portfolio that so far this year has thrown off zero earnings. You know, FFO essentially, it's mostly back half assets. Back end weighted. Again, we have $3.5 billion of value. Market doesn't value. It's not in our earnings. I think the number to look at is the number we gave you, which is our kind of FFO real estate earnings. That was at $2.81, if I remember. That was hurt by $0.08 of rising interest rates. That's $2.89. I think... you know, we give you comp NOI, you're going to have some volatility because of OPI. I think OPI is really simple, three and a half billion dollars, you know, it's going to make 50, 60 cents and, you know, and it's on our books for a lot less. And, um, and again, um, uh, you know, in terms of investments and monetization and everything else associated with that, we're always going to do the right thing. So that's really it. I think, you know, obviously, overage rent has stabilized, so it's a little more conservative. We want to make sure we're conservative as we look at the year. If sales do grow on the back end weighted, that we think will beat our overage number, which will mean we'll beat our guidance. But we don't have a crystal ball, but we've raised our guidance from the beginning of the year. That's the important thing. We've had headwinds with that. Rising rates went up higher than we thought. It's probably the biggest headwind. And then second, You know, the OPI side has been more back-end weighted than we originally anticipated. And that's simple as that. The other thing to remember is, so ABG just raised money at, you know, basically a $20 billion enterprise value because of their growth. We own 12% of the company. We get zero funds from operation contribution from them because of all of their one-time charges. We had the same situation in penny, and that's why we're giving you this real estate FFO number. Put a multiple on it. It's too low. Whatever multiple you think it is, I would add a couple hundred basis points to It's too low. Then add $10 a share, and that's our NAV. And then, you know, enjoy the rest of the summer. That's how I would think about it. Are you still there?
spk26: I am. Thanks, David.
spk18: Okay. You buy that argument?
spk42: You know, we can talk about it.
spk18: All right. Perfect. Thank you for listening. Okay. So... I think we're out of questions, and I owe it to Don Wood. Now I want to tell you a story, okay? So Don initially stole our 5 o'clock time period, so we were not very happy, and we said we'll do it together. And then I said, you know what, we love Don. We want to be friendly. So not only did we move our time, But we gave Don the option of whether he wanted to do 4.30 or 5.30, and he chose 5.30. So if you don't like our time or you don't like his time, blame Don. But I'll hand it over to Don. I feel like Ed McMahon, and Don is Johnny Carson.
spk14: Thank you.
spk34: Thank you. This concludes today's teleconference. Anyway, disconnect your lines at this time. Thank you for your participation.
spk04: © transcript Emily Beynon um um © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon you Thank you.
spk03: Thank you. music music
spk34: Greetings and welcome to the Simon Property Group second 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 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, Senior Vice President of Investor Relations. Thank you, Mr. Ward. You may begin.
spk08: Thank you, Camilla, and thank you for joining us today. 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 today 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.
spk18: Good afternoon. I'm pleased to report our second quarter results. Second quarter funds from operation were... $1.08 billion, or $2.88 per share. I'll walk through some variances for this quarter compared to Q2 of 2022. Domestic and international operations had a very good quarter and contributed 8 cents of growth, primarily driven by higher rental income, higher interest income, and other income of 4 cents. Higher interest expense cost us $0.08 in the quarter-over-quarter comparison, a $0.05 lower contribution from our other platform investments and publicly held securities compared to Q2 2022. FFO from our real estate business was $2.81 per share in the second quarter, compared to $2.78 per share in the prior year period. And year to date, that comparison is $5.65 per share in 23 compared to $5.58 in 22. Our real estate business is performing ahead of our plan and overcoming the headwinds from higher interest expense. And we're also pleased with our OPI results in the quarter and continue to expect the business to meet our original 2023 guidance we provided at the beginning of the year. We believe the market value of our OPI platform is approximately $3.5 billion, or roughly $10 per share. We generated $1.2 billion and free cash flow in the quarter, and $2.1 billion year to date. Domestic property NOI increased 3.3%, quarter over quarter, and 3.6% for the first half of the year. Portfolio NOI, which includes our international properties at constant currency, grew 3.7% for the quarter and 3.8% For the first half of the year, our mall and outlet occupancy at the end of the second quarter was 94.7%, an increase of 80 basis points compared to the prior year. The mills occupancy was 97.3%, and TRG was 93.7%. Average base minimum rent for the malls and outlets was $50. $6.27 per foot, an increase of 3.1% year over year. This is an all-time high for our BMR, and the mills rent increased 4.3% to an all-time high of $36.02 per foot. Leasing momentum continued across our portfolio. We signed more than 1,300 leases for more than 5.1 million square feet for the quarter, and we're up to 11 million square feet year to date. We have 1,100 deals in our pipeline, including renewals for approximately $470 million in occupancy costs. More than 30% of our total lease activity in the first half of the year was new deal volume. We continue to see strong broad-based demand from the retail community across many categories. Reported retail sales per square foot in the second quarter was $747 per foot for our malls and outlets. The mills at $677 per foot. We also hosted our second annual National Outlet Shopping Day in June was very successful for shoppers and participating retailers. We generated more than 3 million shopper visits over that weekend. Feedback has been great. We're also excited to continue to build on this annual event, and we expect it to continue to get bigger and bigger each year. Turning to the balance sheet, we completed the refinancing of nine property mortgages during the first half of the year for a total of $820 million at an average rate of 6%. Our balance sheet is strong. We have $8.8 billion of liquidity. Today, we're proud to announce our dividend of $1.90. cents per share for the third quarter. That's a year over year increase of 8.6%. The dividend will be payable on September 29th. We have now paid over $40 billion in dividends since we've been public. We're increasing our full year guidance of 2023 from $11.80 per share to $11.95 per share to $11.85 and respectively $11.95 per share. This is an increase of 5 cents at the bottom end of the range and 2 cents at the midpoint. Now let me give you food for thought, if I may. We have built a world-class portfolio over our long period of time since we've been public. Following our DeBartolo transaction in 1996, our portfolio consisted of 119 malls and 65 strip centers, primarily in the Midwest. Since then, we have acquired 220 properties, developed more than 50, and disposed of approximately 250 properties. Of the original 184 properties in 1996, 37 remain in our portfolio today. So our high productive portfolio is a result of constant asset rotation. Finally, let me conclude by saying our business is performing well and is ahead of our internal plan. Tenant demand is excellent. Occupancy is increasing. Basement and rents are at record levels. Property NOI is growing and, again, beating our internal expectations that we set at the beginning of the year. And we are now, operator, ready for your questions.
spk34: Thank you. We will now 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 that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we pull up the questions. Thank you. And our first question comes from the line of Mr. Steve Sokwa with Evercore ISI. Please proceed with your question.
spk39: Thanks. Good afternoon, David. Good. I just wanted to follow up on your leasing comments and the pipeline. Everything sounds really good and maybe even getting better as the year unfolds. So, you know, where do you ultimately think that occupancy in kind of the mall portfolio can ultimately settle out? And are you seeing an accelerating trend in pricing power across the portfolio?
spk18: Yeah. Steve, first of all, I think we'll be north of 95% by year end. I don't like the word pricing power so much. I think our asset rotation that I mentioned earlier has allowed us to create kind of a – a portfolio that's really unrivaled in our industry. And given our strong tenant relationships, we're in a good spot to find kind of the win-win that needs to happen when you lease as much space as we do. The physical environment, in terms of bricks and mortar, sales is as important as ever. That's been reinforced by essentially every retailer and anyone that's in the e-commerce business all look to that. I think there was obviously a long period of time where many of the pundits felt that bricks and mortar just don't matter. That's you know the the furthest thing from the truth so we we continue to think our you know rollover by and large is going to be positive and we have the ability now with new tenant demand to replace retailers that you know aren't producing sales and which will allow us to to generate higher rent so I do think we're pushing up Rents, I think we're doing it hopefully thoughtfully, by and large, and we expect that trend to continue.
spk14: Thank you.
spk34: Thank you. And our next question comes from the line of Ms. Caitlin Burrows with Goldman Sachs. Please proceed with your question.
spk00: Hi, everyone. David, you gave those details on the asset rotation since 1996, so I guess that's making me wonder, and I'm guessing everybody else, should that be a suggestion to us that you're looking to get more active in asset recycling, kind of near-term, medium-term acquisitions dispositions, or was that just more a comment on kind of the Simon historical strategy?
spk18: Well, I would say... We've been very active, right? So I think because of our size, it does get lost in translation that we're always recycling, always looking to improve the quality of the portfolio. So I would think our trend would continue. in that sense, and we'll always recycle assets. We find, to the extent that we can do that and generate more liquidity, it's every asset that we have, to the extent that we think there's a good trade to do, whether it's to sell or to buy, we're going to pursue that. And I think it's been an important component of our success over time. At the same time, we've done it, you know, as we all know, we've done it in a way where others have done it in a way to generate the quickest short-term returns through a lot of leverage. You know, we've done it as... as thoughtfully in terms of maintaining the balance sheet as anyone. That's been another key component of our ability to grow yet recycle. I don't think I'm signaling, but maybe you have these epiphanies, so maybe it's possible. that we'll be more active on reallocating capital to different assets than we have today.
spk00: Thanks.
spk34: Thank you. And our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
spk21: Hey, good afternoon down there, David. And also, thank you for moving your call to avoid an overlap. I appreciate it. So question, there was a recent press article, and not that article, which I'll let you opine if you want, but just talking about luxury sales. And my question is this. We all look at luxury as sort of like the ultimate, the driver of retail, if you will. But my question is really, given how customer preferences have changed, lifestyle, people changing how they live, sort of curious, when you look at the tenant landscape, are there any sectors that you would say are now, I guess, going back to Caitlin's early 90s example, are there any sectors now where you're like, hey, 20, 30 years ago, this sector was was nowhere and now it's, you know, 20% of retail or it's the absolute must have. And I'm just sort of curious if luxury is still sort of that dominant place in retail or if it's more niche and it works in certain malls, but for the bulk of what really drives your cashflow to bottom line, maybe it's other sectors. I'm just trying to understand how the face of retail has changed using, you know, your analogy of over the past 30 years, what the company looked like then in the Midwest versus now.
spk18: Yeah, look, I would say unquestionably some of the best retailers in the world, like a Kering or an LVMH group, have the best brands. And they do the most volume. They build the best stores. They think longer term products. longer term over any retailer that we've ever experienced. They're true to their business. So we admire what they do. We admire how they build their brand. We admire how they maintain their brand. They have loyal customers. So there's no better companies to do business with that believe, and we aspire to be more like them than anything. And I think, you know, how they maintain their stores and how they treat their customers and how they're true to themselves. So the luxury business is here to stay. It's growing. It's really important. It's... It's worldwide. It's a great consumer that loves physical retail, that wants to go shop and do other things at our centers. So we want to do as much business as we can with them. They're still very focused. Obviously, sales have flattened a little bit compared to Q2 of 22. But if you look at where they are, and Tom and Brian, I don't know off the top of my head, Alex, but they can, we're 20, 30, 40% above where we were in 19. But I don't remember the exact number, but they can give it to you later. So, you know, one of the interesting things is LVMH Group, and, you know, I'm If you look at our 8K, they're now in our top 10 tenant. We couldn't be more proud of that relationship and the brands that they have. So this is not a niche business. This is a growing business. It's for exactly the affluent shopper, the established shopper, but also the affluent shopper. The fact that we do so much business with them is something that we're extremely proud of. I don't like the word lean in, but we will do as much as we can to continue to foster those relationships. That is a huge differentiating point that we have at Simon Property Group. It's all systems go there. Yeah, sales will flatten. They'll go up. They'll go down. But their commitment to their customer and what they do in their stores, I think, goes unabated. And I admire the fact that they're not a quarter-to-quarter company. They take a much longer view of their brand and where they want to plant their flag and how they want to treat their customers so they're they're they're true partners and great generally across the board we love doing business with them and it's not a niche and that business is growing it's growing worldwide and in fact if anything you know, we'd like to follow kind of where they're headed because, you know, we think there's great business to do together. I hear you typing. Is that another question?
spk21: No, I'm, no, I think Tom said, and federal's right after you guys. So I thought my mic was already cut. So I didn't know you could hear me.
spk18: We're kidding. We're only kidding. We'll talk to you later. Thanks, Alex.
spk22: Thanks.
spk34: Thank you. And our next question comes from the line of Vince Tabone with Green Street. Please proceed with your question.
spk22: Hi. Good afternoon. Could you discuss the spread between leased and physical occupancy and then kind of the cadence in what visibility you store openings for leases that have been executed but are not yet open?
spk10: So, Vince, it's Brian. We're still hovering right around 200 basis points of unopened. That ebbs and flows, as you might imagine, every month given, you know, the velocity of our business. We do think we're going to carry that through year-end, and certainly we do expect that we are going to continue to see openings throughout the balance of the year, you know, as retailers open later this month and into September and October.
spk18: And I would say... I would say just on follow-up on that, Vince, is that, you know, a lot of the business that we, you know, have signed leases on and or about to be signed is still, and I don't, I mean, we can give you the exact number. I'll have it again at the top of my, you know, at the top of my tongue, at the tip of my tongue. But there is a lot of the business that we've signed or about to be signed is is really 24 and even 25 business. And especially, you know, when we're talking the restaurant business, you know, you're talking nine months build out. You're talking permits that are required to get, you know, it's a little more complicated getting restaurant permits, liquor license, et cetera. We've got some great restaurants going into Forum, Crystal, Stanford, Boca. But you're literally talking about a year to get permitted, get opened. To some extent, some of this was delayed also with just equipment because of the COVID and all of the supply chain issues associated with it. And again, when you're talking about our full-price business, build-outs are longer. than the outlet or the mills business. So the pipe on that sense is pretty good, which is not in these numbers. But we also on that front have boxes that are scheduled to open in 24, 25. That is obviously serious long time, a year plus build out. You know, a lot of business with Dick's, Primark, Lifetime Fitness, et cetera, that, you know, Barnes is doing new deals. You know, we're building a new store with Kohl's. You know, stuff that just takes time, Von Maurer, you know, to Shields, et cetera, even though they just recently opened in Wichita to a great opening, which is one of our, 37 by the way just just for a fun fact So, you know the build-out it's frustrating in that it does take time but you know, but it's but so we still expect some some really interesting things to happen in 2425 as these These tenants open and remember in a lot of cases the more interesting the retailer, the longer the build-out. There is a correlation there.
spk22: Yeah, that makes sense. That's all really helpful, Kyle. I appreciate that. My next question, I was hoping you could discuss how demand today by retail format and geography. I'd be curious to hear anything between malls and outlets and also between gateway markets and suburban centers.
spk18: Uh, simply I thought, you know, as I go back in time, I think the, you know, and I'm trying to go through COVID. I, I, I think the demand in the outlet business has, uh, picked up more, you know, it was slower to pick up than the mall business. And I think it's finally picked up to kind of where the mall business has been. Um, so, um, I think demand from a product type is kind of even now. And that's not to say malls have slowed down. It's just that the outlet took a little bit longer to pick back up. Mills was somewhat unabated in that. And as you know, it's a combination of any and all. Regionally, you know, by and large, You know, the super regional suburban sites have a high level of interest across the board. We don't have a lot of, you know, city center stuff, so we're not the right guy to ask. But I am happy that our portfolio is positioned in the, you know, the – the high catchment areas in the suburbs. And then finally, regionally, as you might imagine, where you're seeing population growth, Texas, Tennessee, Florida, those kind of places are seeing a little bit more of the outsized demand. But again, in real estate, You could still have the best location in kind of a micro environment that does unbelievably well because it still is the center of attention. So you got to be careful on these geographic trends one way or another. It really is, as we all know, real estate is very location oriented. But I would say those are just kind of generic trends hasn't changed all that much. But, you know, the suburbs continue to be, you know, as we said a few years ago, well ahead of most, you know, we still felt like that was the place to be. And we're happy to see that, not that we make a lot of predictions, but we're happy to see that prediction, at least one of them came true.
spk22: Great. Thank you. Thank you.
spk34: Thank you. And our next question is from Ronald Camden with Morgan Stanley. Please proceed with your question.
spk43: Great. Just one quick one. Just thinking about the growth function of the business, you talk about getting a 95% occupancy by the end of the year. Obviously, that annualizes in 2024. So when I think about the occupancy boost, the rent bumps, releasing spreads, It doesn't seem like a stretch to get to a 3% plus number next year in growth. So I'm trying to understand, what are some of the moving pieces we should be thinking about as we're building out the growth function of the business in 24?
spk18: Well, I think it's all of the likely suspects. It's lease up. It's renewal spreads. It's new business. Obviously, it's overage. or percent sales and sales activity. So there's nothing new there. I mean, it's all the stuff that has allowed us to, you know, to grow our, um, um, you know, our comp NOI over a long period of time through a lot of volatility, COVID recession, you know, real estate recessions, e-commerce proliferation of this, that, and the other. Um, So it's all of those likely suspects. I mean, I think we feel, you know, generally positive about our ability to grow CompNOI, but it's all the likely suspects and it's all the same, you know, metrics that we have to produce to generate that. And, you know, we still have the ability, even as we get up to 95% thereabouts, we still have the ability to which we can't lose sight of, we have the ability to replace retailers with better ones that will, in just common sense, will be able to pay higher rent because they'll be more productive. It's really that simple. Ron, it's all the same stuff. We're focused on hitting all of those cylinders certainly to finish this year, but also in 24-25. And, you know, the added benefit that we have in 24-25 is that we've, you know, got a lot in the pipeline that will finally open.
spk02: Helpful. Thank you. Sure.
spk34: Thank you. And our next question comes from the line of Flores Van Dykem with Compass Point. Please proceed with your question.
spk27: Thanks.
spk32: Hey, good afternoon, guys. Unfortunately, I have to limit it to one, so I won't focus on the less important OPI stuff. But maybe if you can talk a little bit more about the 200 basis points of sign not open, presumably that's higher in your mall portfolio than your outlets. And maybe if you could also quantify in terms of dollar amount or NOI impact, I know that a lot of those leases and that S&O, there's a lot of luxury tenants which typically pay significantly higher rent. So presumably it has a greater impact on your NOI and ABR than the percentage just in terms of occupancy.
spk18: Look, we don't want to get into that level of detail. We certainly will for 24 as we outline what our component line growth is but you're you're a hundred percent right that that the You know, it is much easier and quicker to open an outlet store You know the build-out it can be anywhere between 30 and 90 days and the mall generally can be six months plus And then when you get to complicated Tenants or where the build-out is expensive. You're talking nine months plus restaurants in that area. But we do, and it goes back to, I think, Flores, you were one of the original analysts that was very focused on when we're going to get back to 19 levels. And I'm happy to say that we will be back We better be back, okay? But we will be back there in 24. And a lot of that, really, at the end of this year, we annualize it. So, you know, it really is a function of getting those retailers open. But the specific numbers, I mean, I'll – If the guys want to talk offline and go through it, I'm certainly happy to do that. But I think it's better answered as we go through 24, our comp NOI plan with you early next year.
spk23: Thanks, David. Sure.
spk34: Thank you. And our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your questions.
spk28: Great. Good afternoon. Follow-up question, David, on your comment on potentially allocating money for investments into other assets. I mean, you've been doing that really since the world financial crisis, investing in the best properties. You've been densifying assets with apartments, etc. Is there anything else that you're thinking of changing that you've noticed a change, let's say, between the the difference in the assets you own or what you're seeing out in the retail landscape or you're really sticking with those programs as well?
spk18: I think, Jeff, we're going to more or less stick to our programs, but of what we've done historically, I think it's been the right strategy. We'll knick and knack. I mean, we've had good experience By and large, not perfect, but good experience, you know, experimenting here and there. But our core business is high quality retail real estate. We're not moving away from that by any stretch of the imagination. We have lots of levers in that category to pull in terms of how we want to allocate capital. Do we want to put it more here versus there? You know, do we want to sell this and reinvest that? You know, so I think that if I had the ability to express it, we think about that all of the time. We never really talk about it, but as we, you know, the sole purpose of going through that asset rotation was to tell you that we do think about this stuff all the time. And beyond just think about it, we actually do stuff about it. And sometimes communicating that to investors and analysts is important to know that we're going to reallocate capital where we think the growth is, and we're not afraid to sell or buy or hold. or whatever, you know, whatever kind of we think is the right thing to do. So that's really it. I wouldn't make, you know, this is not like we're not trying to, like, here we go, something's big around the corner. It's just, you know, we've done this, and, you know, we just wanted to point it out.
spk41: Great. Thank you.
spk18: Sure.
spk34: Thank you. And our next question comes from the line of Mike Mueller with JP Morgan. Please proceed with your question.
spk24: Yeah, hi. Can you give us a sense as to how rent spreads compare when you move from the mall and outlet portfolio to TRG to the mills?
spk18: Well, I don't want to really talk about TRG so much, but I would say... You know, the spreads are, when you look at mills, outlets and malls, it's all pretty decent. We still see, you know, our occupancy cost now is around 12%, right? So, you know, we're feeling better about our ability to generate positive rent spreads It's not always going to happen on every space in every mall or outlet, but we're seeing it pretty much across the board. Again, I would say to you from what might shift is where I thought our Outlet business was a little slower coming out of COVID. We're seeing a much better pickup over the last, you know, year or so there. And so, you know, we're optimistic that that's going to continue as well.
spk12: Okay. Thank you.
spk18: Sure.
spk34: Thank you. And our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your questions.
spk09: Good afternoon. Thanks a lot for taking my question. In your opening remarks, you talked about the deals in the pipeline and that 30% of lease activity in the first half was new deal volume. How does that compare to the past, and what does this indicate? Does this indicate that there is greater interest for new concepts that are interested in leasing, or is there some other meanings? behind this data point that you provided. Thank you.
spk18: I just think it most importantly reinforces the importance of our product and it reinforces how retailers feel about the mall and the outlet business. It's a great sign. I mean, it's a great sign that we have new concepts. And I would say generally that 30% has really developed over the last, you know, say 18 months. And whether it's direct to consumer, whether it's, you know, the luxury, whether it's a restaurant business, whether it's entertainment, we're seeing entertainment pick up. like we did pre-COVID. I think it's a testament to the product. The new retailers that want to open new stores in our existing product is a great sign and a great testament. That level is certainly much higher than I've seen since You know, I mean, it goes, I'm going to say almost seven, eight years because, you know, the 20, you know, 2020, I'm sorry, 2019, we probably didn't have that level of percentage of new tenants. So it's clearly higher than it was in the 1918-17 level. And it kind of goes back to where we were in the 14, 15, 16 level. So it's a good sign for sure.
spk40: Thank you.
spk34: Thank you. And our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
spk25: Hi, good afternoon. Two-part question. One, it looks like there's a 10 or 11 cent... Gain in the P&L. Just curious if you could talk a little bit about what that is and if that was assumed in the guidance, the prior guidance. And then secondly, if you have any comments on the prior quarter's comments on domestic property NOI of at least 3%. Thank you.
spk18: Let me... Gain. No, no, no, I know that, but what did you say, 2%? 3%. Oh, let me start there. So... Yeah, we're feeling very comfortable that we'll be above the 3%. The after-tax gain is associated with the ABG raising of capital, primary capital, which we get diluted down, so we have a dilution gain. After-tax, it was $0.07. Yeah.
spk10: Yeah, there's three cents of tax in the tax line, Michael, for that transaction.
spk25: Okay. And that wasn't in the prior guidance, I'm assuming, correct?
spk18: Well, we didn't, we, you know, we, I don't, we give a pretty big range and, you know, really wasn't in our guidance so much to speak because, you know, that's really out of our control.
spk01: Thank you.
spk34: Thank you. And our next question is from Greg McGinnis with Scotiabank. Please proceed with your question.
spk38: Hey, good afternoon. So a quick two-parter on Taliban for me. NOI was down 3% from last quarter while occupancy was up 40 basis points. Just curious what the drivers were of that decline. And then in line with your comments on asset recycling, can you remind us the process by which you would recapture the remaining 20% of that investment and whether you're you're planning to do so, or maybe that's one of the assets that you might be looking to recycle.
spk18: Well, I'm not going to comment on that. So there are puts and calls associated with Taubman over basically a five-year period. They have the right to kind of slowly put 20% of their interest to us. And then we eventually have a call associated with it. So that's that. And, Brian, why don't you go through the – it really was more of a function of kind of the percent rent or overage rent that they had in Q2 of last year. Yeah. But do you have any other comment on it?
spk10: Yeah, Greg, that's exactly what it was. You can see on a year-to-date basis we're still ahead, but they did have a higher percent of dread contribution in Q2 of last year than they did this year.
spk18: The other thing on Taubman, on TRG, so our FFO contribution this quarter versus last quarter is lower, and it's primarily three things. Number one is we've got D&O insurance reimbursement. in q 2 of 22 um that's number one number two is um we also had a land sale uh and then obviously number three is the higher interest expense so a little more exposure floating rate debt there and i think the spread difference between our ffo contribution from trg to it to Q2 of 22 over 23 was how many cents? Seven, something like that? Seven cents. Okay, so I still remember numbers. So if you go through, so our FFO contribution from Taubman TRG, where we own 80%, was seven cents lower this quarter than Q2 of last quarter of 22. Okay, so that might be helpful to you. Those are the order of magnitude. If there's any details on that, you know, call Tom or Brian. But that's generally it. So we had a lower contribution. Is that the right number, Adam? Yeah. Okay. Thank you. That's the right number, so there's really not much to ask.
spk33: Okay. Thanks.
spk34: Thank you. And our next question comes from Handel St. Just with Mizuho. Please proceed with your question.
spk31: Hey, good evening out there.
spk18: We're not actually, to be technical, we're really not out there. We're actually in New York City today. So, you know, I know Indiana is considered out there, which, you know, I will not comment on, but we're actually right here. I don't know where you are, but we're right here in New York City.
spk29: I'm not too far from you. All right, cool.
spk30: So can you talk about the outlook for retail sales in the back half of the year, given the macro and the expiration of the student loan payments and what you think that'll do or impact that'll have on the business? And maybe some commentary also on your debt, how that's trending, and early thoughts on potential improvement on that line item in 2024. Thanks.
spk18: Yeah, I would say we're actually optimistic on the back half of this year because we're You know, comps or sales, I should say, in the second half of 22 really started to decelerate, you know, because of the, you know, obviously the increase in interest rates, gas prices, inflation. So I think across the board, our comps get easier for our retailers in the second half. So we're actually optimistic. And I think generally the economy, as we all know, is, you know, seems to, you know, relatively stable. Obviously it's a very uncertain world. So, you know, anything can happen. But we're actually optimistic on sales for the second half and expected to, you know, to comp up on, With respect to bad debt, we're not seeing, I mean, it continues to be lean and mean. And, you know, it's a little more than maybe last year, but it's like it's still comparatively historical lows. Yeah. Okay.
spk27: Thank you. Thank you.
spk34: Thank you. And our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
spk36: Hi. Thanks for taking my question. In terms of 3% NOI growth, is that the level you think you could sustain next year?
spk16: I would hope so, yes.
spk05: Any color around that?
spk18: which is not one of my qualities, but that was the most succinct answer I've had all day. Did you have another question, Linda?
spk36: Sure. I guess on page 19, you also broke out mixed use and franchise operations income and also the same line item for expense, maybe just a little more colorful.
spk18: Yeah, I think Brian and Tom felt because we're doing, and these are only consolidated assets. So, you know, we have a, we, we, we have a big franchise operation with Starbucks in terms of our, you know, our, our, you know, where we franchise some Starbucks location. Plus obviously we're building hotels and the, And it was all lumped into the other income, other expense, and we thought instead of having all the questions on why is this number growing and this number growing, we just felt like it would be better to separate it. Believe it or not, for your benefit.
spk36: And then how do we model that going forward?
spk18: Look, I think the hotel business... is pretty straightforward in that we're building it, we have certain returns, and I think we pretty much outline our returns and our 8K, so I think that's pretty, obviously it takes time for apartments or hotels or any mixed use to stabilize, but I think that will be pretty easily At the end of the day, the Starbucks business is not even material. There's some profit embedded in there. We view it more as an amenity that we can make some margin on. It's grown a little bit bigger than what it was historically because we took over some of the operations during COVID. And so that's not an overly material number. And, you know, we can kind of give you an order of magnitude of revenue and expense. The only problem this year, it really, some of these just came on board. So, you know, I'd say to you in 24 will be kind of the first full year, and that will probably be, we can certainly outline what it is, but The net profit is not overly important.
spk35: That's helpful. Yes, thanks.
spk14: Sure. Okay. Thank you.
spk34: And our next question comes from Craig Mailman with Citi. Please proceed with your question.
spk26: Good afternoon. David, just a quick clarification on one of the earlier questions about the seven cent neck gain. You know, you guys raised guidance here by five cents at the midpoint. Could you just run through if there are any other puts and takes that moved around with guidance this quarter, um, where maybe this wasn't the sole driver, but maybe something operational and, you know, this could have offset something else. Just trying to get a sense that was this the reason guidance went up and had this not happened, um, you guys would have ended up kind of lowering the range here on the margin.
spk18: No, I mean, I think we're always pretty conservative. So, you know, we'll see how the, you know, we're always trying to beat and improve our numbers. I think we have as good a history of anybody to do that. And, again, we always, I know, It might frustrate folks, but, you know, there's always puts and takes in a company our size. I mean, we have $80 billion of assets. We're not a small strip center company that's got, you know, there's going to be some volatility. We've got a $3.5 billion asset portfolio that so far this year has thrown off zero earnings. You know, FFO essentially, it's mostly back half assets. Back end weighted. Again, we have $3.5 billion of value. Market doesn't value. It's not in our earnings. I think the number to look at is the number we gave you, which is our kind of FFL real estate earnings. That was at $2.81, if I remember. That was hurt by $0.08 of rising interest rates. That's $2.89. I think... you know, we give you comp NOI, you're going to have some volatility because of OPI. I think OPI is really simple, three and a half billion dollars, you know, it's going to make 50, 60 cents and, you know, and it's on our books for a lot less. And, um, and again, um, uh, you know, in terms of investments and monetization and everything else associated with that, we're always going to do the right thing. So that's really it. I think, you know, obviously, overage rent has stabilized, so it's a little more conservative. We want to make sure we're conservative as we look at the year. If sales do grow on the back end weighted, that we think will beat our overage number, which will mean we'll beat our guidance. But we don't have a crystal ball, but we've raised our guidance from the beginning of the year. That's the important thing. We've had headwinds. With that, rising rates went up higher than we thought. It's probably the biggest headwind. And then second, You know, the OPI side has been more back-end weighted than we originally anticipated. And that's simple as that. The other thing to remember is, so ABG just raised money at, you know, basically a $20 billion enterprise value because of their growth. We own 12% of the company. We get zero funds from operation contribution from them because of all of their one-time charges. We had the same situation in penny, and that's why we are giving you this real estate FFO number. Put a multiple on it. It's too low. Whatever multiple you think it is, I would add a couple hundred basis points to It's too low. Then add $10 a share, and that's our NAV. And then, you know, enjoy the rest of the summer. That's how I would think about it. Are you still there? I am.
spk26: Thanks, David.
spk18: Okay. You buy that argument?
spk42: You know, we can talk about it.
spk18: All right. Perfect. Thank you for listening. Okay. So... I think we're out of questions and I owe it to Don Wood. Now I want to tell you a story. Okay. So we, Don initially stole our five o'clock time period. So we were not very happy and we said, we'll do it together. And then I said, you know what? We're, we love Don. We want to be friendly. So not only did we move our time, But we gave Don the option of whether he wanted to do 4.30 or 5.30, and he chose 5.30. So if you don't like our time or you don't like his time, blame Don. But I'll hand it over to Don. I feel like Ed McMahon, and Don is Johnny Carson. Thank you.
spk34: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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