Simon Property Group, Inc.

Greetings and welcome to the Simon Property Group first quarter 2024 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, Tom Ward, Senior Vice President of Investor Relations. Thank you, Mr. Ward. You may begin.

Thank you, Camilla, and thank you all for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer and President, 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 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to one hour. For those who would like to participate in the question and answer session, we ask that you please respect the request to limit yourself to one question. I'm pleased to introduce David Simon.

Good evening. We're off to a good start with results that exceeded our plan. First quarter funds from operations were $1.33 billion or $3.56 per share compared to $1.03 billion or $2.74 per share last year. Let me walk you through some highlights for this quarter compared to Q1 of 23. Domestic operations had a very good quarter and contributed 9 cents of growth driven by higher rental income. Gains from investment activity in the first quarter were approximately $0.75 higher year over year. OPI had a $0.02 after-tax lower contribution compared to last year. Funds from operation from our real estate business was $2.91 per share in the first quarter compared to $2.82 in the prior year period, 3.2% growth rate. Domestic property NOI increased 3.7% year over year. We have continued leasing momentum, resilient consumer spending, and operational excellence delivered these results that were above our plan for the first quarter. Portfolio NOI, which includes our international properties at constant currency, grew 3.9% for the quarter. NOI from OPI in the first quarter includes a $33 million charge in one-time restructuring charges at Spark and JCPenney. Excluding these one-time charges and a bargain purchase gain from Reebok transaction last year, NOI from OPI improved $5 million year over year and was on plan for the quarter. Remember, these retailers are on a fiscal year end of January 31st, and the charges were part of the year end closing process. They were not budgeted. Mall and occupancy at the end of the first quarter was 95.5%, an increase of 110 basis points compared to the prior year. Mills was 97.7%. Average base minimum rent for our malls and outlets increased 3% year over year, and at the mills, 3.8% increase. Leasing momentum continued. As I mentioned, we signed more than 1,300 leases for approximately 6.3 million square feet. Approximately 25% of our leasing activity in the first quarter was new deal volume. We are approximately 65% complete with our 24 lease expirations, and we continue to see strong broad-based demand from the retail community. Retail sales volume across the portfolio increased 2.3% for the first quarter compared to last year. Our tourist-oriented properties outperform the portfolio average in the quarter with a 6% increase in sales. Reported retail sales per square foot in the first quarter was $745 a foot for our outlets and malls combined, which was flat year over year, excluding two retailers. Retail sales per square foot from our premium outlet platform reached an all-time high this quarter. Occupancy cost at the end of the first quarter was 12.6%. Now let me talk about other platform investments affectionately known as OPI. We sold our remaining interest in Authentic Brands Group during the first quarter for gross proceeds of close to $1.2 billion and recorded a pre-tax and after-tax gain of $415 million and $311 million, respectively. The sale in the first quarter combined with the sale in the fourth quarter yielded gross proceeds of $1.45 billion. We generated substantial value from the ABG investment and a 7X multiple on our net invested capital during our short ownership period. As a result of the sale of ABG, and the restructuring charges that I mentioned earlier, one time in nature at Spark and Penny in the first quarter, we now expect FFO contribution from OPI to be around break even this year compared to the initial guidance of 10 to 15 cents. For your reference, we budgeted at OPI, the FFO from ABG, around eight cents per share. So roughly half of that was associated with ABG. Now moving on to new development and redevelopment, we opened an AC hotel at St. John's Center. We are opening Tulsa Premium Outlets this summer. Leasing's going great. And we have a significant expansion at Busan Premium Outlets in South Korea this fall. At the end of the quarter, new development and redevelopment projects were underway across our platforms in the U.S. and internationally as well with our share of net cost of $930 million at a blended yield of 8%. We expect to start construction on additional projects in the next few months. including just shortly our residential project at Northgate Station in Seattle. What's interesting for us is we're able to build when others need to rely on construction, lending, market, which is, as you might imagine, very difficult right now. We expect our starts to be around $500 million this year. Now, on our balance sheet, we retired $600 million of senior notes in the quarter. We ended the quarter with approximately $11.2 billion of liquidity. Today we announced our dividend of $2 per share for the second quarter, a year-over-year increase of 8.1%. The dividend is payable on June 28th. And given the transactions for this quarter and our results for this quarter, our current view for the remainder of the year, we're increasing the full range of our full year guidance of 2024 in the guidance range of $11.85 to 12, I'm sorry, let me restate that. We're increasing our range to $12.75 to $12.90 per share compared to $12.51 last year. This is an increase of 90 cents at the bottom end of the range and 85 cents at the midpoint Needless to say, I'm very pleased with our first quarter results, and our business and tenant demand continues to remain strong despite a cloudy macro environment. Occupancy is increasing. Property NOI is growing. We made a significant profit on our ABG investment, and everything is kind of moving in all the right directions. Thank you. We're ready for questions.