Simon Property Group, Inc.

Q1 2024 Earnings Conference Call

5/6/2024

spk13: 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.
spk12: 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.
spk17: 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.
spk13: 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. The confirmation tone will indicate that your line is in the question queue. And you may press star 2 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 keys. Our first question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.
spk10: Hi, good evening everyone. Congrats on the solid quarter operationally and execution on the ABG sale. I guess there have been news reports that you could get involved in Express. So whether it's related to Express or the Simon strategy going forward, can you give some insight to your current thinking on having ownership in brands, what type of terms are attractive to you, and how you balance that with the potential earnings volatility?
spk17: Well, you know, no one likes earnings volatility unless it's volatility in the right direction, okay? So, Caitlin, thank you for the comments to start, but that's, you know, I don't like volatility either. Listen, on Express, we were approached by the IP owner. I think it's not overly... complicated in the sense that they saw what we had done historically both with ABG and SPARC and offered us to participate with no capital but also add our expertise and our knowledge in what we've done in the past with SPARC and because we have always valued Express as a retailer and as a client, we jumped at the opportunity. We don't expect it, we expect to be, it's gotta go through bankruptcy process, and that's out of our control, but if we can do it, If WHP does end up getting it, we'd be pleased to participate in the turnaround of Express. And again, we don't expect any capital as part of that participation. So when we get opportunities like that, we evaluate it. We look at the brand and the value of the brand. In this case, we're... you know, comfortable that, uh, uh, that, uh, express, um, is a good company and it's a great brand and, and, uh, we can add value to it. And given the fact that, um, you know, we were able to hopefully turn around the retailer, save jobs, um, create the value from our investment. Um, you know, it's, we see it as a win-win situation with, with, um, you know, with no capital from our standpoint.
spk10: Great. Thanks for that.
spk18: Thank you.
spk13: Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.
spk00: Hi, this is Lizzie Duyken on for Jeff. I was curious if you could talk a little bit more about the key drivers of retailer sales as we started the year. and it seems like there's been some good out performance from driven by especially your tourism driven centers so I'm just wondering how much that has been a factor into the first quarter of this year and how much upside there is remaining from tourism. Thanks.
spk17: Sure. We feel very bullish on our you know, portfolio in general. And then obviously our tourist centers, especially in California and in the Northeast, are starting to finally see the improvement that, you know, we have been seeing for quite some time in Florida. And, you know, Florida continues to be an unbelievably strong market as well. So we're finally seeing California Northeast pick up. Obviously the strong dollar vis-a-vis certain currencies does have an effect, kind of an inhibitor effect. But even with that said, domestic tourism continues to excel. And I think people, at the end of the day, when they go on holiday, they love shopping as part of that experience, dining, shopping, being with their families. And as I said earlier, we feel like the mall's made a big comeback. Physical stores are where it's happening. We're seeing a resurgence. and the reinvigoration of that whole product. So we're pleased it's kind of where we're seeing things. So certainly the lower income consumer has been under pressure now for quite some time. We're very focused on that. Obviously inflation has taken its toll. And even though inflation is moderating, the prices that the lower income consumers dealing with are quite daunting. So we'll continue to see volatility in that area, we anticipate. We're hoping that their cost of living moderates and to some extent decreases. you know, their wages go up or, you know, their cost of living goes down so we can see more discretionary income there. The higher income consumer continues to, you know, to spend and, you know, visits our properties and it's good. And, you know, a good example of that is our traffic for the first quarter, I think, was up around 2% for the year, right, guys? Yes. So, you know, that's also a very good sign.
spk18: Okay.
spk13: And our next question comes from the line of Samir Kanal with Evercore. Please proceed with your question.
spk07: Good afternoon, everyone.
spk06: David O'Brien, you provided a same-store guide of at least 3% last quarter. I guess, how do you feel about that guide today? You're doing 3.7 in the first quarter. Clearly, leasing's been strong, but we've also seen some announcements from Express, Route 21. I guess, how do you feel about that guide today? Thanks.
spk17: Yeah, look, we don't update that... As you probably know, I think you know, that's our goal for the year. We don't update it every quarter, as some others might, but we still feel like that, even though we've got some unanticipated, to some extent, I mean, we do create bogeys on our rental income stream on retailers that we do feel... might come under pressure in the air. So we do have kind of adjustments in our budgeting process dealing with those. We still feel like our initial guidance on that is very achievable. So we don't update it every quarter, but if we didn't feel like we could achieve it, I think we would... you know, we would highlight that, but we don't see that even with some of the, you know, I mean, we might not overachieve, you know, as we always want to, but I think we can still deliver the initial guidance.
spk18: Thank you, David. Thank you.
spk13: And our next question comes from the line of Ronald Candom with Morgan Stanley. Please proceed with your question.
spk08: Great. Just a quick one on the $500 million development starts. If you could just talk about sort of the opportunities there and do you sort of still see opportunities to go on offense on sort of the mall space given that fundamentals are coming back and we know that there's going to be peers looking to sell assets. Are there opportunities and appetites to go on offense on sort of buying more assets. Thanks. Sure.
spk17: You know, I think, you know, we've seen rates more or less stabilized now. You know, there was a volatility prior to that where it was hard to predict. Now, you know, we're not anticipating a reduction in rates, but at least we feel like we're in more or less a stable rate environment, that makes it easier to make investment decisions. So I would break it up into two buckets. The first bucket being our redevelopment effort, and most of that, frankly, is mixed use in our properties, and we feel very bullish on that. Remember, you're talking about bringing on If it's a two to three year process, you're talking about bringing on product in two to three years, not gonna be any supply. We do a very good job of understanding supply and demand. The new, better product always wins. So, we are unabated in our mixed use, and we'll be doing some multi-family development you know, both in Bray and Orange County, and as I mentioned, we just signed our GMP at Northgate Station to build about 300 units as part of that whole redevelopment. So that really goes unabated. When you get to the external, you know, external New Deal environment, I would say, you know... We have a lot of opportunities ahead of us and I think our job is just to prioritize, make sure we're valuing the opportunities right and we don't take our eye off the ball, you know, with what we're doing with our existing portfolio. So, long story short, I probably would, you know, Venture to say that there could be more external opportunities for us, but again, it's got to be great quality at a fair price and assets where we think our expertise can add cash flow growth to them.
spk18: Thank you. Thank you.
spk13: And our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
spk19: Good evening. Thanks a lot for taking my question. David, you highlighted the health of the consumer seems like doing all right or managing through the environment. Just given your positioning, the occupancy gains and the pricing power that you have, if there was some sort of macro slowdown, how do you think you would be able to navigate it? Or maybe said another way, do you think the business has become a little bit less macro sensitive as you've as there's been consolidation and you've kind of become the place where you've reached consumers in that luxury space? Thanks.
spk17: Sure. Look, we are, make no mistake about it, we are not immune to the macro environment. So we would, you know, have to deal with it, both from if it ultimately led to less consumer spending and more retail client stress. We're not immune to it. However, and this is the big underline from my standpoint, I have always felt like we've done our best work when others are dealing with the macro environment. And as I mentioned to you, we have $11 billion of liquidity in our comments earlier. So I think when and if, and frankly, I mean, it's realistic to assume we may go through a reasonable slowdown here coming up. I think that's when we do our best work. That's when others get tired and throw in the towel. That's where we get rejuvenated. Hopefully we're rejuvenated now, but this is when we really get motivated. As I think back, and I've had the luxury of being in the spot for 30 years, I think we do our very best work when the times get tough. So not wishing that on us or anyone, but it's a realistic probability. We won't be immune for it, but I think we'll further separate this company from our peers. So that I know. That I have 100% confidence in that If that does happen, we'll have further separation.
spk18: Thank you very much. Thank you.
spk13: Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
spk01: Hey, good afternoon out there. David, just want to go back to Caitlin's question. In response to the retailers, you said that it brings a lot of volatility. Obviously, we all like volatility the right way, but you can't deny that you guys have made a ton. I guess I could use a French word to describe the ton, but you guys have made a ton of money, billions, from these retailer investments. Yes, they are volatile, but they've been lucrative. So I just want to get a better sense. Is the Express model sort of a future where you guys will participate in if you put in no capital or just trying to understand how you weigh the money that you've made versus, you know, the short-term or the quarterly earnings volatility because clearly it's been a source of success for you.
spk17: Yeah, that's a, you know, it's interesting, Alex. It's a very good question and I think honestly we really focus on, you know, to the extent we do put in fresh capital, in addition to understanding what it means for our overall business and the totality of our company, it's also absolutely driven by return on investment, just like building a new shopping center. And again, yes, we have volatility, but in the scheme of things, again, and the fact that we've made money, I hope most folks are understanding that the volatility is really on the margin. And I'll just give you a good example of, you know, and again, we take, you know, FFO, as you know, is net income plus depreciation. Well, you know, the contribution we get from our retailers is net income, which is fully burdened by depreciation, so there's no add-back. But to give you a simple analysis on, you know, on just ABG as an example. So we cleared a billion 450 of cash, and that produced about eight cents of earnings, because we just picked up our share of net income. We only got, we only, as a shareholder, we only would get tax distribution. It's a subchapter S, essentially. So we'd only get our tax distributions, which amounted to two million a quarter. So that's $8 million. And if you take the billion 450 and you invest it in the bank at 5.5%, that's $70 million. So we went from $8 million in cash flow to $70 million just selling that. So we look at every aspect of it, pre-tax, after-tax, what does it mean to the portfolio? We don't want volatility, but we'll certainly... if we think it's going to be a good investment. And it all kind of goes into, you know, the analysis. We understand the market is not thrilled with it, so we try to also do it in a way that really, really does not make it, you know, the story. It is on the margins. and it will always be on the margin, but we do think we can add value to the enterprise by some of these investments. Each investment is so idiosyncratic that it's hard to say, again, if Express happens, it's say that that's the new model because I don't know that I can say that. I think every one of these things is somewhat idiosyncratic, but we do have the opportunity to do more than lease space in Alabama someplace. That's what this company is all about. We do more We're in South Korea. We're in Jakarta. We're building in Tulsa. We're building apartments in Seattle. I'm waxing a little bit here, but we think of ourselves broader than I think the market thinks of us. That's incumbent upon us, and I think our disclosures have gotten better over time. I hope you agree, Alex, on OPI so you can see it, not detract from real estate, but at the same time, we're somewhat different than when you line us up to others that do some of what we do.
spk01: And that was the point, that you guys have this special thing. It's sort of like Kimco has their retailer unique thing, and it would be a shame to do away with it if it was just volatility because clearly it's made you a lot of cash. So thank you for the answer.
spk18: Thank you, Alex.
spk13: Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question.
spk05: Thanks, it's Nick Joseph here with Craig. David, I just wanted to ask on kind of the opportunity to roll out additional luxury, either VIP suites or retailers. We saw what you did at Woodbury and I'm just curious on the opportunity for the remainder of the portfolio and what kind of demand do you think that will drive from some of these higher income clientele that you're seeking?
spk17: Listen, I think we've got a great portfolio of real estate that is focused on the very high income consumer. And I think we need to step up our game in all the services that need to be provided to that consumer. And I think Woodbury... sawgrass are just the beginning of an effort to really, I can't think of the right word, but really entertain that consumer to make it really special. And it's all the services that they're accustomed to. It's the fine dining. It's the ease of access. It's having the right retailer mix. So we probably have around 20 to 25 properties that have this high... Our centers are really big, so they obviously appeal to a broader range of consumers, which is the way we like it, because that's also... You diversify... you know, the ebbs and flows. But those 20, 25 centers really need special attention. We've got a great team that's dedicated to them. And, you know, in many cases, we're the preferred or, you know, certainly a meaningful landlord to the best retailers in the world. And we definitely want to stay in that spot. So a big push for us to step up our game when it's dealing with the very high-end consumer on all sorts of levels. And so I think what happens at Sawgrass with the Oasis and the Colonnade And, you know, what already happens at Woodbury, but, you know, we're just stepping up our game, will happen at Houston and Kenya, Prussia. And, you know, if you saw what we did at Phipps and Atlanta and, you know, what's going on at Boca Raton in Florida, you know, just to name a few that jump out at me, is really, really a high priority for the company.
spk13: And our next question comes from the line of Floris Van Dykem with Compass Point. Please proceed with your question.
spk02: Hey, thanks. David, I was going to ask you about luxury, but I was pipped. So instead I'm going to ask you about capital recycling. Presumably your guidance, I mean, you just cleared $1.2 billion on the ABG sale. It's sitting there in cash, and obviously you do have some ongoing projects you know, developments, but those are essentially funded from your retained cash flow, if you will. So the guidance assumes that that cash sits there uninvested, essentially, for the rest of the year, or is there a further upside, I guess, is what I'm getting at, if you were to do something else with that cash to redeploy that into higher-yielding investments?
spk17: Yes, very good question. You know, we... We cleared in two months a billion 450, as you know, Florence. So I just wanted to mention that. But yeah, right now, our guidance just assumes it sits in the bank. Or pays down debt. But that's basically it. So no really... No real... redeployment is contemplated in our numbers at this point. Brian, if you want to add anything. Yeah, no, that's right.
spk20: We just assumed that we would hold the cash for the time being, and we have debt maturities coming due here in September and October, and so we could use the cash on hand to fund that. We also are carrying cash from our capital markets activities last year, so the combination of it will address our upcoming maturities. Thanks.
spk18: Thank you.
spk13: Our next question comes from the line of Vince Tabone with Green Street. Please proceed with your question.
spk16: Hi, good evening. Could you elaborate on the charges taken in the first quarter related to Spark and JCPenney, and then possibly related to that, kind of what is your near-term outlook in terms of JCPenney store closures, just given foot traffic trends in recent years have not been great? So just curious how long you think the current store count and fleet is sustainable.
spk17: Yeah, the charges pre-tax were $33 million. So not, you know, not, you know, most, it's kind of funny, Vince, because, you know, most charges are in the hundreds of millions of dollars. So I think you have to put it in perspective. But with that said, it really dealt with, you know, personnel and inventory. So that were the two primary factors and more really on the inventory side because we had some clearance inventory that in SPARC it was really focused on F21 and penny just on basically clearing out some inventory. You know, Penny, we're pleased with Penny. I'll just talk a moment about the store closings. You know, they're very interesting. They don't, Penny is able to produce positive EBITDA even if there's, you know, you know, not high sales. I think they do, you know, out of the box. So I don't really... In fact, I think Penny almost can be a beneficiary opening new stores as opposed to closing stores. I'm sure there will be a few here and there, but, you know, most all of their stores are, you know, positive EBITDA, and so they have a very good way of having positive EBITDA out of... what I call low volume stores. And again, this is what's interesting to us. Penny's not public, so you know what matters to me, Vince? Cash flow, EBITDA, and obviously, comp sales are important, right? But as long as we're profitable out of the stores, There's no Wall Street pressure that we've got to narrow the store count. I don't necessarily believe shrink to grow. It's very hard to achieve. Maybe you can achieve it. My history, not overly long, but long enough, I don't care what industry, it's very hard to do. Some have done it, but to me, if it's That positive EBITDA, there's nothing wrong with maintaining that store for the community. You certainly don't want to lower standards of how you operate it, but if you can create cash flow, it doesn't necessarily mean you have to reinvest that much in it, and you can use that cash flow to reinvest in other elements of your business. I don't anticipate, long story short, I really don't anticipate much portfolio real estate activity at the JCP level.
spk16: That's really helpful, Collar. Maybe we can just have a quick follow-up on that. I'm just curious, given the ownership structure, are you guys able to pursue recapturing some of these boxes at your best properties to unlock? you know, mixed-use development opportunities, or how would that work given your split ownership with Brookfield?
spk17: Yeah, well, look, I think as part of the deal originally, first of all, our relationship with Brookfield is excellent, and our, you know, we both basically, and ABG's an investor in there as well, but we We very much see eye to eye on JCPenney and how it operates, how we should operate it. And I would say both of us, and now my memory is a little bit cloudy, but when we did the restructuring, we did get, both of us got the opportunity to reclaim or reclaim certain space from JCPenney that we could redevelop. So it's a good question and the fact is we are about to embark upon one that you'll see an announcement in the near future where we are going to ultimately redevelop a JCPenney at one of our centers. I don't remember the exact count. I don't remember exactly how much Brookfield, but as part of the bankruptcy process and negotiation with each other, we did give each other the right to do that. And so what happens there is we get notice to the company. It's already documented, and we get the, you know, and we can, in this case, It's a lease, so there's nothing to pay. We just cancel the lease now. Obviously, the store's a little bit profitable, very profitable for JCPenney, so we're going to have to find him some new opportunities to make up for it, but that's all part of the deal. I think there'll be a handful like that, both from us and Brookfield, that we'll be able to do. But, and again, that was all pre-negotiated. To the extent that there's one that wasn't part of that negotiation, you know, that's pretty, you know, given our relationship with Brookfield, pretty straightforward. We come up with a value or they come up with a value. You know, obviously the JCPenney management team would have to be part of that and, you know, they would, get the appropriate value to redevelop that project.
spk18: Thank you. All great color. Thank you.
spk13: And our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.
spk21: Hi, good afternoon. Just hoping to ask about the watch list or bad data. I believe you said you'd assume 25 basis points last quarter. Has that changed now at all? And if so, maybe if you could break out the express impact. And in your prepared comments, you talked about sales on a per square basis being flat, stripping out two tenants. Just curious on the color of why those two tenants were stripped out, if there's any interesting... Yeah, let me answer that.
spk17: I think... The two tenants, I mean, even if we didn't, I think it's just color for you to know that generally, you know, the portfolio was flat. We don't like to name tenants, so we don't, you know, focus on it. I'd also, I think, point out to you the most important thing we look at is total volume, and we were up quarter over quarter. What was the number again? 2.3%. That's really the number we look at. And again, remember, these are reported sales. We can get into this whole diatribe about some of the retailers credit their sales with internet returns. So it's just information. Do what you want with it, but it's just information. But our sales, if you include the two retailers, the last 12 months was down 1.8% on a rolling 12. But total, because not all those were comp, total was up 2.3%, which is the more important number. Now, we'd also, just to, and Brian can add in here, now that I'm talking, I might as well just finish. You know, we don't, as part of our Discussion we don't will never get into a retailer specific response But you know obviously bankruptcy for tenants has a lot of You know a lot goes on leases have to be rejected You know and depending on where they were on that and what happens so We In our comp NOI, we have our bad debt expense. I think I gave you some color. We still feel like it's achievable. But again, I don't think, and Brian can add, we're not going to really give you color too much on Express, but we do put in, when we model our business for the year, we do put in unforeseen circumstances. and we try to budget appropriately for retailers that are under pressure. In this case, we kind of knew Express was in that spot, but a lot remains to be seen how Express comes out of bankruptcy and the ultimate financial impact.
spk04: Thank you.
spk18: Thank you.
spk13: Our next question comes from the line of Handel St. Just with Mizuho. Please proceed with your question.
spk03: Hey, good evening. Thanks for taking the question. A quick two-parter here. First, I wanted to follow up on Flores' question on the uses for the cash from the retail monetization. The stock's $35 or so higher than what you lost back, so I assume it's fair to assume that buying back stock is less likely here. And are there any special dividends that need to be paid on that gain? And then my second part of the question is, we noticed that the TRG property count dropped to 18 properties versus 20 last quarter. What happened there? Thanks.
spk17: I'll let Brian. I hope you can answer all these. I expect you to. I can.
spk20: With respect to TRG, there were two properties. One was a partner buying out our interest. So the property count went down by two in the quarter. With respect to... Well, tell them the two. Fair Oaks and Country Club are the two assets that the partner is buying us out or bought us out. With respect to capital on the balance sheet, certainly it's a capital allocation decision relative to stock buyback. But with the amount of capital that we are generating, both free cash flow and what's on our balance sheet, it is still an appropriate use of capital throughout the balance of the year and would expect that we would have interest in buying back our stock at certain levels.
spk17: Yeah, and I would just add to that that the ABG sale happened, I don't remember exactly, but near quarter end, and we were blacked out from that because of Q1 earnings, so... I wouldn't read the fact that it's sitting on the balance sheet to read too much into that.
spk03: Got it. Appreciate that. And the special dividend, anything on that front?
spk20: There is no required special dividend. This interest was owned in our taxable REIT subsidiaries. There will be a tax actual payment due, not actual special dividend.
spk18: Got it. Got it. Thank you.
spk11: Our next question comes from the line of Linda Tsai with Jefferies.
spk13: Please proceed with your question. Hi.
spk14: Thanks for taking my question, a two-parter. Appreciate the fact that you won't provide capital to Express, but could you just give more color on how you would be providing assistance to the brand?
spk17: Well, I think, you know, obviously there is a couple of elements. The first, the most important one is that You know, we have the history of running a retailer coming out of bankruptcy. So I think for better or worse, I think it's better, but, you know, others may not agree with me. You know, there's a certain expertise in doing that, and, you know, we have it. and I think what our potential partner sees on that is that we can bring to the table. So I wouldn't underestimate that. That's one. Number two is, as part of any bankruptcy, we're gonna have a lease negotiation. Some leases will get... restructured. Some won't. Some will pay what the existing rent is and so on. But that happens regardless of whether or not we're involved or not. So that's just part of the bankruptcy process. We go space by space and find out what we'd like to do, maybe short-term leases, so on and so forth. But But we're not alone in that. Any other landlord will have to come to their own conclusion on what they want to do if part of rent adjustment is necessary to get the brand on solid financial footing.
spk14: And do you have any clarity on the store closures at all? Because one of your much smaller peers expects to close 65% of its stores in 2Q.
spk17: You know, we are not involved in that process. That's really management. So I have no point of view or no opinion on that at all. That whole process is part of it. We really won't get involved until we're approved as the stalking horse bidder. that all that's going on today with the DIP and everything else is all part of, it's all the existing management team. We have no involvement in that whatsoever.
spk14: Thank you.
spk17: Sure.
spk13: And our next question comes from the line of Mike Muller with JP Morgan. Please proceed with your question.
spk09: Yeah, hey guys, it's Hong on for Mike. I guess I was wondering, can you give us an idea of what tank categories you're seeing most of the demand from in your malls? I'm just wondering if it's broad-based or how much of it is apparel versus the other categories.
spk17: Honestly, it's across the board. Restaurants, entertainment, leisure, sports-related... You know, it's the bigger boxes, the Uniqlo's, Primark's of the world, Zara. You know, it is, you know, it is, you know, this is where I give a shout out to Rick because he used to go through it. But, you know, we're seeing it, you know, Abercrombie, we're doing a lot of new opportunities with. Mango, Golden Goose, just to name a few. Knitwell, JD Sports. Aloe. Aloe. Lululemon's growing with us, upsizing a lot of properties. Our house is a great company that we're doing business with. Pinstripes. number of restaurants, restaurateurs. It's very, very, very encouraging because it's so diverse.
spk09: If I could sneak one other question in. I guess the $745 square foot sales, is that portfolio-weighted or NOI-weighted?
spk17: Portfolio-weighted. I'm sorry, just portfolio, pure. If it was NOI-weighted, We used to do that. It's like $950,000.
spk20: Higher? $950,000 plus or minus.
spk17: Okay, $950,000 thereabouts.
spk18: Perfect. Thanks. Sure.
spk13: Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.
spk04: Hey, David. Good afternoon. Just in looking at the volatility of the retail investments, what are the drivers to keep, you know, Spark and JCPenney on balance sheet as opposed to the ABG investment? And would you look to sell those in the near future?
spk17: Well, again, they're equity accounted, so they're really not on our balance sheet, just to, you know, just to make it clear. So there are investments in them. Listen, we build a company where everything is core and nothing is core. We saw ABG, we got an offer, we hit the bid. I would view that for any and all assets that we have, whether it's JC Penney, Spark, XYZ, Mall. you know, call Uncle David and, you know, most people don't hit my bed, but, you know, the only thing that's core is, you know, the company and its people and its balance sheet, but every other asset's for sale at the right price. So nothing is critical long term. And again, you know, look, guys, we're, Talking about volatility and the reality is the volatility has been mostly on the upside and again we're a company that earns $12 and we're talking about 10 cents here or there. I just want to put everything more or less in perspective. There's nothing that I wouldn't sell at the right price across the company and worldwide, period, end of story. And it's very simple. You know why? Because if we got the cash, I know we would find an appropriate investment that would replace the earnings lost. It's really that simple. or we give it to the shareholders, or we buy our stock back. So I am at the point of the highest level of indifference about monetizing an asset, as you'll see.
spk18: Great. Thanks for the call, Eric. Sure.
spk13: Thank you. We have reached the end of our question and answer session. And with that, I would like to turn the floor back over to Mr. David Simon for any closing comments.
spk17: Okay, thank you. I'm sorry. I know it's the end of earnings season. We're always late in the Q1 because we tie it to our annual meeting on Wednesday. But thank you for your interest and your questions. Very good questions. Appreciate it. Thank you.
spk13: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer

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