Operator:

Greetings. Welcome to Simon Property Group's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to Tom Ward, Senior Vice President of Investor Relations. Thank you. You may begin.

David Simon:

Good evening, everyone. I'm pleased with our financial and operational performance in the second quarter. We are seeing increased leasing volumes, occupancy gains, shopper traffic, and retail sales volumes resulted in the company's highest level of real estate NOI for the second quarter in our company's history. Demand for our space from a broad spectrum of tenants is strong and steady. Our company is focused on creating value through unique and disciplined investment activities that will continue to deliver long-term growth and cash flow, funds from operations and dividends, as you've seen by our recent increase in our dividend per share. And importantly, make our properties better for the communities in which they operate. I'm now going to turn the call over to Brian, who will cover our second quarter results and the full-year guidance in more detail.

Operator:

Thank you. [Operator Instructions] Our first question is from Jeff Spector with Bank of America. Please proceed.

David Simon:

Thank you, Jeff.

David Simon:

Sure, Jeff. This is David. I'll take that. So look, I think we've been pretty consistent for well over a year that the lower-income consumer has been under pressure for quite some time, primarily because of the inflation that's affected them. So that continues to be the case, they are very focused on managing their bills and discretionary expenditures have been obviously not where we'd like to see them. So we're optimistic that we're going to cycle out of that from the lower-end consumer as given the inflation picture that we see now, which is relatively benign. It's way too early, Jeff. We haven't seen a slowdown in the higher-end consumer. Obviously, the market is in an interesting point. We have not seen the wealth impact at all impact that higher-end consumer. So we're still pretty sanguine about it. I think, as you know, we kind of budgeted at the beginning of the year flat sales. We're a little bit above that. So we've got a little bit of cushion. But the higher-end or the better end-consumer, I think is in a good spot. Your liquidity is in a decent spot. So we don't expect anything dramatic. But obviously, they're going to take their cue from now what's going to happen in the overall market and what the employment picture looks like. So in summary, I think we're going to cycle more positive in the lower-end consumer and I think the higher-end consumer steady as she goes currently. Yes, Jeff, you can always ask another question, but Tom Ward has put a pretty tough restriction on people.

David Simon:

Thanks, Jeff.

Samir Khanal:

Hi, David. I guess what are you seeing in terms of leasing or pricing power? I mean, are you seeing any tenants taking a bit of a pause or taking a bit longer to sign new leases given what's happened with the macro and I guess any color on July would be also helpful in terms of traffic or sales? Thanks.

Samir Khanal:

Thank you.

Operator:

Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed.

Brian McDade:

Hey, Caitlin, it is Brian. I think we're pretty comfortable thinking that we're going to end the year north of 96%. Certainly still a little bit of noise out there, but given the robust demand in the type of environment we're in, we think we're north of 96% by the end of the year.

David Simon:

I'm sorry, I was just going to add that I think obviously, it's also not just the occupancy number, it's also replacing retailers that aren't performing with better retailers. So it's a mix issue too, which the team is very much focused on. Go ahead, Caitlin.

Brian McDade:

Well, I'd be cautious and that's a pretty good number for us year-end. Tom knows every number, but he's [indiscernible]. So it's a pretty good increase from last year, 95.5. Not that good at that. So maybe there's upside.

David Simon:

Yes. Thanks.

Alexander Goldfarb:

Hey, good afternoon. And David, certainly good to hear you on the call. Hope the recovery and all the stuff is going well. Just a question for you big-picture. Jeff kicked it off and a number of -- my peers have all asked the same question. But as we look at the environment today, certainly there's a lot less retail availability. There's been a big shake-up not only among the retailers themselves, but also the landlords and certainly cost for new development has gone through the roof. So as you look at the picture today, with the economic concerns, but also at the same time that the tenants seem to be in better capital positions. Are you as worried today when you see weak economic data? And does that impact the way you think about expanding, putting money to work and how the leasing conversations are going? Or do you think that we're in a better situation or worse situation? Like how do you judge where we are now just given that the environment seems to be different than it has been over the past few decades.

Alexander Goldfarb:

And you see the same confidence from your retailer, from your partners, your tenants or are they're waffling?

Alexander Goldfarb:

Thank you.

Operator:

Our next question is from Michael Goldsmith with UBS. Please proceed.

David Simon:

Well, again, occupancy is like any statistic people want. And again, to be clear, we do think we'll increase our occupancy. The bigger opportunity for us is again to continue to increase better than mix. So -- and that drives, obviously the better the mix, the higher the sales, the higher the sales, the more likelihood that you're going to have higher rents. So that's the big focus as we continue to merchandise our properties. Brian, I don't know if you want to add anything to here.

Michael Goldsmith:

Thank you very much. Good luck in the back half.

Craig Mailman:

Hey, guys. Maybe shifting gears a bit on to the balance sheet and just the rate environment here. Just your thoughts generally with a three, eight, 10 year. If that's at all changing your view on kind of the upcoming debt maturities in the back-half of the year and how to fund those versus how much cash to keep on hand versus, David, maybe your commentary about the gap between you and others, your ability to be on the offensive to make investments now that if we do go into recession by the time they're done, you're kind of on the other side of it and you're well-positioned. So I'm just kind of curious, I know it's a broader question, but just how kind of the softening rate environment here, does that change anything you're doing or how you want to be positioned on the margin?

David Simon:

Yes. And I would just say, look, we got $11 billion of liquidity, so obviously a lower interest-rate environment does increase our earnings potential. There's all sorts of things associated with a lower interest-rate environment, but by and large, that's beneficial to real estate. So if that's the case, that's going to be better than what we planned initially for this year and what we were thinking for next year. So that's good news in a nutshell. But again, remember, we got -- we're not living, mortgage to mortgage, we're a different kind of company. So we don't have the Holy Toledo, I'm going to say another word, Holy Toledo, we can't refinance this mortgage. So anyway, so -- but by and large, if rates go lower, that's better for this company.

Juan Sanabria:

Thanks for the time. And David, I hope your recovery is going well as well. I'm just curious on the investment front, you clearly sound more bullish or wanting to invest more capital in debt and re-debt. But just curious about external acquisitions with the statement that you said that you're only going to kind of widen the gap between yourself and others. Would that make you want to wait because there's going to be better -- a better maybe spread down the road between your performance and those of others or not necessarily?

Juan Sanabria:

Thank you.

Operator:

Our next question is from Ronald Kamdem with Morgan Stanley. Please proceed.

Brian McDade:

Well, Ron, I think you're seeing broad-based demand across all of our platforms. So it's difficult to kind of give you an individual kind of thumbnail into it. But certainly, we see -- we over-index in our outlet business, certainly towards international towards and that's still very strong for us. That's a driving factor kind of in our outlet business results. But certainly, the retailers are doing business across all three formats. You're going to say the highest occupancy ever. So the demand is broad-based from all retailers across all three major platforms of ours at this point. David, I don't know if you want to add anything?

Ronald Kamdem:

Great. Thank you.

Operator:

Our next question is from Haendel St. Juste with Mizuho Securities. Please proceed.

Brian McDade:

Hey, Haendel, it's Brian. As we think about demand, we've got a signed but not open pipeline of about 300 basis-points. You heard David talk about mix and so we are moving some tenants around. So that's not all just additive. There'll be some coming out-of-the bottom of that for sure. But that's just a further indication of the work that our team has done in demand for space to have 300 basis points signed, but not open pipeline for us. So really, really kind of that defines or kind of really gives you a really good sense of the breadth of what's out there for us as far as demand for space,

Brian McDade:

As you know, we don't update that as we go. We established it at the beginning of the year, and to see that our best to exceed that number which we have thus far.

Operator:

Our next question is from Vince Tibone with Green Street. Please proceed.

David Simon:

I think it's more -- that's a -- I wish I had an algorithm. I don't, but I'm sure we could get AI to do something for us. I would -- my history would suggest short-term fluctuations mean absolutely nothing. But over time, if you had a down-market for six or nine months, you're going to rein in consumer spending. So I do think it's going to have to take the downward trend or the negative -- the volatility is not going to really impact the consumer in the next short period of time. But if you see it for several months, then I would expect us to see some slowdown in consumer spending. So it does take time to see, but I think that the consumer is used to seeing some volatility and they have some probably built-in gains that they never thought they would have had, right? So when companies get valued in trillions -- I remember when a $50 billion market cap was did, when companies get valued at trillions of dollars, and that's a lot of retail, I hope those retail investors are smart enough to sell and then spend the money in our malls, I mean that would be a good cycle for us, okay? So I think even if these levels were in pretty good shape, if you have a -- if you have kind of a longer downturn, then it's realistic to think that consumer spending is going to be reined in. But offsetting that obviously will be, low inflation, lower interest rates and you can -- you could potentially see a scenario that we dealt with pre-COVID, right? So it's -- if there's a lot of variabilities out there. And -- but I don't think short-term fluctuation is going to have an immediate impact.

David Simon:

Yes. Look, I'll -- Brian may have a number. I would just say big-picture, a lot less coming out of COVID, but higher probably than pre-COVID. And so I don't know what perspect that is, Brian, if you don't, well, we could probably give that number to you. But it's certainly a lot less than when we started in COVID, but higher than probably pre-COVID.

Vince Tibone:

Great. Appreciate the time. Thank you.

Operator:

Our next question is from Greg McGinniss with Scotiabank. Please proceed.

David Simon:

How old are you going to be?

David Simon:

No, no, no, not at all.

Brian McDade:

Greg, from an international perspective, Greg, last year, we did recognize a one-time performance fee in our McArthurGlen business to some third-party managed capital there. So that did not repeat this year. So that's why you see a decline in that line item. That will normalize itself just by sheer operation going forward.

David Simon:

Yes. I would just say our international assets both in Asia and in Europe are pretty much on plan if not a little bit better. So [indiscernible], as you know, reported last week to better results. And they're obviously nicely positioned going forward. And Europe and Asia is some movements in the different countries, Japan having extraordinary growth because of the yuan, a couple of other markets flat. But generally speaking, international -- this got good -- as Brian mentioned, good comp NOI growth this year and pretty much on budget.

David Simon:

Sure.

Floris van Dijkum:

Hey, thanks. Glad to hear you're doing well, David. You sound great. Question on Value Retail. I know you guys own a stake in that. It's sold at an incredibly low cap-rate to Catterton, who I think is the investment arm of LVMH. Could you maybe talk about maybe -- and I think that's -- it's a different market, obviously, but if you could talk about the cap rates environment in Europe versus here and maybe also the long-term nature of some of these big luxury brands? And do you see them putting money to work at those kinds of cap rates? I mean, I guess they have already on Fifth Avenue, but in the mall business as well in the US in your view?

Floris van Dijkum:

And if I may follow-up, I mean, are you having -- how are your discussions going with your institutional partners here in the US in the mall business? Are they -- are those partners happy? And would you -- are there opportunities for you to maybe buy some of them out or are they pretty comfortable owning some of those top malls that you typically JV with them?

Floris van Dijkum:

Thanks, David.

Operator:

Our next question is from Linda Tsai with Jefferies. Please proceed.

Brian McDade:

Linda, most of that's going to be back-end weighted to -- there'll be a little bit this year. Most of it will really manifest itself next year just given where we are in the year and how retailers traditionally position their store fleet to get most of it open before we're back-to-school holidays. So most of it is going to be back-end weighted for next year -- front-end weighted for next year, excuse me.

Brian McDade:

It's really difficult to predict what's going to happen 12 months from now. So it is what it is right now. Ultimately, as we continue to kind of move through, we've seen some consistency in that number and some increase, right? We were talking about it is about 200 basis points a year-ago. So we would see an increase over the past 12 months to get to 300 basis-points.

Brian McDade:

I don't have that number in front of me here.

Linda Tsai:

Great. Thank you.

Operator:

Our next question is from Mike Muller with JPMorgan. Please proceed.

Brian McDade:

It's just a mix of the deals that they're doing at the assets they're doing, Michael. So they're doing some better leasing at their better assets and that's really coming through the average rents for that period of time. Not every space is creates equal, not every asset is created equal. So they're seeing great wins at their best assets that have the best pricing. And it's not a small portfolio. So you're getting a bigger percentage. It's a smaller portfolio, a much smaller portfolio than ours. So you're just getting a bigger percentage jump from it.

Operator:

Our next question is from Ki Bin Kim with Truist Securities. Please proceed.

David Simon:

Yes, sure. I'll take a shot at it. So I mean historical recessionary times. And again, we're not in that camp just yet. I mean you call me in two months and we might be. But I would say our NOI cash flow tends to flatten out. It's very obviously there's so many variables that go into it, but I hate still talking about COVID, but we really didn't see other recessions, really didn't see cash-flow from the properties go down, they flattened. I would think not knowing exactly if and what kind of recession it is and how hard and how deep and all that other stuff. It would be hard to give you a number other than to say history would indicate our cash-flow was relatively flat. We weathered pretty nicely because what happens is tends to happen as big-ticket items tend to go in the back-burner and the stuff that we sell at our properties tends to maintain itself. So that would be the best guess at this point, but it is almost impossible without kind of knowing exactly what kind of market that we're in. But again, we're not in that camp yet. And we might be later on in the year or whenever but I would think our cash flows would be relatively flat assuming it's -- you just -- it's hard to say what a typical recession is anymore, but I would say that's probably the best guess at this point.

David Simon:

Sure.

Caitlin Burrows:

Hi, again, this has been a very efficient call. I guess maybe on retailer bankruptcies Express and Rue 21 were retailer bankruptcies of 2024 and I'm guessing you have had exposure from a rent perspective to additional smaller ones also that maybe aren't as obvious. So could you comment on how the outcomes of the 2024 bankruptcies on Simon's financials have ended up versus your expectations and then give a broader update on the current watchlist and going forward?

Brian McDade:

Yes, watch list continues to be relatively flat. Those things that have happened, we had a thought that they would and it planned ahead. We don't really see much on the horizon at this point. No new additions in the watch-list at this point.

David Simon:

Well, look, I think we continue to work through it. It's -- if you look at that whole, Penney, Sparc, RGG, Jamestown, we basically have around $200 million plus or minus EBITDA in that kind of OPI bucket now that APG is out. And it'll be plus or minus a couple of cents here or there. So because again, we have accounting, we've got lots of depreciation. You don't know that fast and the brands within Sparc, the lower-income consumer continue to fight through a tough market for that consumer. So there's not a lot of new news other than the team at Sparc is working very hard. The new stuff that they're buying is working but it continues to be a very competitive marketplace.

David Simon:

Thank you.

David Simon:

I think this wraps it up. Let me just say to everybody, thank you. I got a lot of well wishes during this tough time for me and I'm working at it and appreciate all your support and we'll talk in the near future. Thank you.

Operator:

Greetings, and welcome to the Simon Property Group First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Thomas Ward:

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 Reuille, Chief Accounting Officer.

David Simon:

Good evening. We're off to a good start with results that exceeded our plan. First quarter funds from operation 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 $0.09 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.

Operator:

[Operator Instructions] Our first question comes from the line of Caitlin Burrows with Goldman Sachs.

David Simon:

Well, 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 -- 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 been -- 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. So we don't expect it -- we expect to be -- it's got to go through bankruptcy process, and that's out of our control. But if WHP does end up getting it, we'd be pleased to participate in the turnaround of Express.

Operator:

Our next question comes from the line of Jeff Spector with Bank of America.

David Simon:

Sure. We feel very bullish on our portfolio in general. And then obviously, our tourist centers, especially in California and in the Northeast are starting to finally see the improvement that we have been seeing for quite some time in Florida. And 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 currency does have an effect, kind of an inhibitor effect. But even with that said, domestic tourism continues to excel.

Unknown Executive:

Yes.

Operator:

And our next question comes from the line of Samir Khanal with Evercore.

David Simon:

Yes. Look, we don't update that, as you probably know. I think you know. We don't -- that's our goal for the year. We don't update it every quarter as some others might. But we still feel like that's -- 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 year. 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 highlight that. But we don't see that even with some of the -- I mean, we might not overachieve, as we always want to, but I think we can still deliver the initial guidance.

Ronald Kamdem:

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 that there is going to be peers looking to sell assets? Are there opportunities and appetite to go on offense on sort of buying more assets?

Michael Goldsmith:

David, you highlighted the health of the consumer. It 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, do you think -- 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 -- as there's been consolidation and you've kind of become the place where you've reached consumers in that luxury space?

Operator:

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

David Simon:

Yes. That's -- it's interesting, Alex. It's a very good question. And I think, honestly, we really focus on -- to the extent we do put in fresh capital, we -- 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.

Alexander Goldfarb:

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.

Nicholas Joseph:

It's Nick Joseph here with Craig. David, I just wanted to ask on kind of the opportunity and -- 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.

Operator:

And our next question comes from the line of Floris Van Dijkum with Compass Point.

David Simon:

Yes. Very good question. In fact, we cleared in 2 months $1.450 billion, as you know, Floris. So I just wanted to mention that. But yes, right now, our guidance just assume it sits in the bank and/or pays down debt. But that's basically it. So no really -- no real redeployment is contemplated in our numbers at this point.

Brian McDade:

Yes. No, that's right. We've 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 were carrying cash from our activities -- from our capital markets activities last year. So the combination of it will address our upcoming maturities.

Vince Tibone:

Could you elaborate on the charges taken in the first quarter related to SPARC 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 has not been great? So just curious how long you think the current store count and fleet is sustainable?

David Simon:

Yes. Well, look, I think as part of the deal originally -- first of all, our relationship with Brookfield is excellent in our -- we both basically -- and ABG is an investor in there as well, but we very much see eye-to-eye on JCPenney and how it operates and 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 certain space from JCPenney that we could redevelop it.

Juan Sanabria:

Just hoping to ask about the watchlist or bad debt. I believe you said you had assumed 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-foot basis being flat, stripping out 2 tenants. Just curious on the color of why those 2 tenants were stripped out, if there's any interesting development?

Operator:

And our next question comes from the line of Haendel St. Juste with Mizuho.

Brian McDade:

I can. With respect to TRG, there were 2 properties. One was a partner buying out our interest, so the property count went down by 2 in the quarter. With respect to...

Brian McDade:

Fair Oaks and Country Club are the 2 assets that when -- 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 we -- 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.

Haendel St. Juste:

Got it. Appreciate that. And the special dividend, anything on that front...

Operator:

Our next question comes from the line of Linda Tsai with Jefferies.

David Simon:

Well, I think obviously, there is a couple of elements, the first -- the most important one is that 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 others may not agree with me. There's a certain expertise in doing that, and we've -- we had. And I think what our potential partner sees on that is that, that we can bring to the table. So I wouldn't underestimate that. That's one.

Linda Yu Tsai:

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?

Operator:

And our next question comes from the line of Mike Mueller with JPMorgan.

David Simon:

Honestly, it's across the board, restaurants, entertainment, athleisure, sports-related -- it's the bigger boxes, the UNIQLOs, Primarks of the world, Zara. It is -- this is where I give a shout-out to Rick as he used to go through it. But we're seeing it -- Abercrombie were doing a lot of new opportunities with Mango, Golden Goose, just to name a few; KnitWell, JD Sports, Alo, Lululemons growing with us, upsizing a lot of properties. Our House is a great company that we're doing business with, pinstripes, number of restaurants, restaurant tours. It's very, very, very encouraging because it's so diverse.

David Simon:

Portfolio weighted. I'm sorry, just portfolio, pure. If it was NOI weighted, where we used to do that, it's like $950 -- higher.

David Simon:

Okay. $950, thereabouts.

Greg McGinniss:

David, just on looking at the volatility of the retail investments, what are the drivers to keep SPARC and JCPenney on balance sheet as opposed to the ABG investments? And would you look to sell those in the near future?

David Simon:

Okay. Thank you. Sorry, we -- I know it's the end of earnings season, we're always late in the Q1 because we tie it to our annual meeting next -- on Wednesday. But thank you for your interest and your questions, very good questions. Appreciate it. Thank you.

Operator:

Greetings and welcome to the Simon Property Group Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ward, Senior Vice President, Investor Relations. Thank you, Tom. You may begin.

David Simon:

Good evening. Thanks, Tom. Before turning to the results, I would like to provide some perspective on our company as we celebrated our 30th anniversary as a public company in mid-December of last year. We have grown our company into a global leader of premier shopping, dining, entertainment and mixed-use destinations managing through and in some cases, very turbulent times. Over the last three decades from our base of 115 properties in 1993, we have acquired approximately 300 properties, developed more then 50, and disposed of approximately 250 resulting in our current domestic portfolio of about 215 assets. We expanded globally, and today have 35 international outlets, including world-renowned outlets in Asia, and our portfolio is differentiated by product type, geography enclosed and open-air centers located in large and dense catchment areas. Our portfolio is supported by the industry's strongest balance sheet and a top management team. We are the largest landlords, the world's most important retailers, and not by accident, our diversified tenant base has solid credit, our mix is always changing and adapting, best illustrated by the fact that compared to 30 years ago, only one retailer is still in our current top 10 tenants. Our team's hard work has resulted in industry-leading results including some of the following; our annual revenue increased from $424 million to nearly $5.7 billion, our annual FFO generation increased 30 times from approximately $150 million to nearly $4.7 billion, a 12% CAGR. Total market capitalization has increased from $3 billion to $90 billion. We have paid over $42 billion in dividends to shareholders. We have assets in our portfolio that have been in business for more than 60 years. Those assets are still growing today with many generating a $100 million in NOI. These assets are in great locations, have a loyal and large customer base that is where the retailers want to be. No other asset type has longevity including the NOI generation and embedded future growth that these assets have, yes, they change. Yes, they evolve, yes they adapt, but yes, they also grow. Our collection of assets cannot be replicated. And there are hidden - always hidden opportunities within that. I want to thank the entire Simon team, who have contributed to 30 years of success as a public company. And now let me turn to our fourth quarter '23 results. We generated approximately $4.7 billion in funds from operation in 2023 or $12.51 per share and returned $2.9 billion to shareholders in dividends and share repurchases. For the quarter, FFO was $1.38 billion or $3.69 per share compared to $1.27 billion or $3.40 per share. Let me walk you through some of the highlights for this quarter compared to Q4 of 2022, domestic operations had a terrific performance this quarter and contributed $0.28 of growth primarily driven by higher rental income with lower operating expenses. Gains from investment activity in the fourth quarter were approximately $0.07 higher in a year-over-year comparison, other platform investments at $0.03 lower contribution compared to last year. FFO from our real estate business was $3.23 per share in the fourth quarter compared to $2.97 from last year. That's 8.7% growth and $11.78 per share for '23 compared to $11.39 last year. Domestic property NOI increased 7.3% year-over-year for the quarter and 4.8% for the year continued leasing momentum, resilient consumer spending operational excellence delivered results for the year, exceeding our initial expectations. Our NOI ended the year higher than 2019 pre-pandemic levels. Portfolio NOI, which includes our international properties at constant currency grew 7.2% for the quarter and 4.9% for the year. Mall and outlet occupancy at the end of the quarter, fourth quarter was 95.8%, an increase of 90 basis points compared to last year. The Mills occupancy was 97.8%, and occupancy is above year-end 2019 levels for all of our platforms. Average base minimum rent for malls and outlets increased 3.1% year-over-year and The Mills rents increased 4.3%, we signed more than 960 leases for approximately 3.4 million square feet in the fourth quarter. For the year, we signed over 4,500 leases, representing more than 18 million square feet approximately 30% of our leasing activity for the year were new deals, we're going-in rents of approximately $74 per square foot and renewals had going-in rents of approximately $65 per square foot. Leasing momentum for the last couple of years continues Into 2024. Reported retailer sales per square foot in the quarter was $743 for malls and outlets combined and $677 through The Mills. During the quarter, we sold a portion of our interest in ABG for gross proceeds of $300 million in cash and reported pretax and after-tax gains of $157 million and $118 million respectively. We opened our 11 outlet in Europe last year, construction continues on two outlets, yes, one in Tulsa, Oklahoma, and yes, one in Jakarta, Indonesia. We completed 13 significant re-developments. And we'll complete other major development projects this year. In addition, we expect to begin construction this year on five to six mixed-use projects representing around $800 million of spend from Orange County to Ann Arbor, to Boston, to Seattle, to Roosevelt Field, they are some of the ones that are planning to start this year. And we expect to fund these redevelopments to mixed-use projects with our internally generated cash flow of over $1.5 billion after dividend payments. During 2023, we completed $12 billion in financing activities, including three senior note offerings for approximately $3.1 billion including the Klépierre exchangeable offering. We recast and upsized our primary revolver credit facility to $5 billion and completed $4 billion of secured loan refinancings and extensions. Our A-rated balance sheet is as strong as ever, we have approximately $11 billion of liquidity. During 2023, we paid, as I mentioned earlier, $2.8 billion in common stock dividends. We repurchased 1.3 million shares of our common stock at an average price of just over $110 per share in 2023, and today we announced our dividend of $1.95 per share for the first quarter and year-over-year increase of 8.3%. The dividend is payable on March 29 of 2024. Now moving onto 2024, our FFO guidance is $11.85 to $12.10 per share. Our guidance reflects the following assumptions; domestic property NOI growth of at least 3%, increased net interest expense compared to 2023 of approximately $0.25 to $0.30 per share reflecting current market interest rates on both fixed and variable debt assumptions and cash balances. Contribution from other property, other platform investments of approximately $0.10 to $0.15 per share; no significant acquisition or disposition activity, and our current diluted share count of approximately 374 million shares. So, with that said. It's safe to say, we're excited to enter year '31 as a public company. Thank you for your time and we're ready for Q&A.

Steve Sakwa:

Thanks. Good evening, David. I was just wondering if you could maybe talk a little bit about kind of the leasing pipeline and where things stand today versus maybe the year ago and what sort of conversations are you having with the tenants and maybe how the pricing dynamic changed there, given that you're now kind of 95% leased and pretty full in the portfolio.

Steve Sakwa:

Thanks, that's it.

Operator:

Thank you. Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

David Simon:

Sure, well let me just - we sold about 2% of our ABG stock. So, we essentially went from just under 12 to just under 10. And we'll continue to look to monetize these investments, they've been by and large, very good investments across, not just the big ones, but the smaller ones as well. Obviously, there's number of them that are synergistic to us. But, we have a strict adherence to creating value. And we think we can deploy that capital into kind of what I'd call the mothership and can get better growth from that and that's where our number one priority will be. So, it wouldn't surprise me, Caitlin, for us to continue to monetize, obviously, the - some of these are bigger value - bigger investment. So, it's not that easy to do it in one big swoop, but We're very focused on portfolio management of those assets and If we can monetize and are we going to get a better return plowing it back into our core business.

David Simon:

Yes, thank you.

Jeff Spector:

Great. Thank you. And first, congratulations on the anniversary. David, there is a lot of initiatives. So as you think about the next five years, I know it's probably difficult question, but Is there one or two key initiatives that you're most excited about as you think about the next five years?

Jeff Spector:

Very helpful. Thank you.

Operator:

Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

David Simon:

Well I mean, Alex, look, our yield is ridiculously hot, okay. So, that's really where we could financially pay $2.10 tomorrow, right. So, we have $1.5 billion of free cash flow after dividends. So, it has nothing to do with financial wherewithal. I mean we like our - we would like - we don't like trading at this high yield. So I think, I think that's kind of how we look at it, we still think as we have these, additional capital events. We still are anxious to continue to buy our stock back. And again, when I look at either the S&P 500, I look at the REIT peer group, I look at, what the strip center REITs - our yield is plenty high for investors. So tell all my investors, I could pay $2.10 tomorrow evening, okay, per quarter without a blink and our yield is too high. And, it will be there before you know it, but we would like to trade at a lower yield, because we think, certainly if you look at it on that basis, our yield is higher than it should be I mean, the S&P is under 102%, our REIT strip centers, Tom are in the 4s. We're close to s7, right - 6.5 - 7. So. I mean Alex, you should be pounding the table.

David Simon:

No, I, I'm kidding. By the way, we're not - just so you know, we like you're welcome out there, we are west of the Hudson, but we're not going to tell you exactly where we are, okay? Somewhere in Indiana tonight, - we may not be in Indiana tonight, but we are west of the Hudson.

David Simon:

Well, I can't tell you in my schedule.

Operator:

Our next question is from Michael Goldsmith with UBS. Please proceed with your question.

David Simon:

Sure . Good question, so I will say this. I think the rent - the going-in rents and renewals for new leases are very much sustainable. If you look at our occupancy costs, we are still at the low end of our historical range, and we're at 12.6% and we have run up to 14% plus before. And I would also, I would also caution report, these are the sales that our tenants are reporting to us, but they are somewhat affected by returns they it and so on. We actually think our sales per foot are higher than this. Some cases they have the ability to offset our returns in most cases, they don't. So, I just put that out there, so I wouldn't - and I mentioned this maybe two, three years ago, probably certainly pre-pandemic, but we report it. I know the market likes it. We actually think our sales were higher that come from our properties and then they are somewhat affected by returns. And we think some of - a lot of those returns are Internet sales returns. So, they don't even come from our properties. And so again, when we look at it, we feel like supply and demand, low occupancy cost, high retail sales, and just overall demand will be able to generate kind of the new leasing renewal spreads that we've seen over the last couple of years.

Operator:

Thank you. Our next question is from Floris van Dijkum with Compass Point. Please proceed with your question. Floris, is your line on mute?

Operator:

Our next question is from Craig Mailman with Citigroup. Please proceed with your question.

David Simon:

Well, on the - Craig, on the department store boxes, I don't have it off the top of my head, but the launch we own basically don't have a ton of work to do. We have a handful of boxes that we own that are in process, like for instance, I've mentioned Brea, but just briefly on the call, we did - that was a former Sears store we tore it down in development now under construction now. So the actual stores that we own are not many, probably under 10 at this point that are either currently under construction or in process. So, very small amounts of, kind of a less of an opportunity than you think. The ones that we felt Transformco still owns some boxes and so does Seritage. So you know well, in our properties. So, we'll see how that evolves. I mean, eventually some of those could be opportunities for us to buy and redevelop. We haven't made deals on those just because bid and the ask has been too great, but we - and I don't think luxury is really going to be the dominant theme on a lot of these mixed use - I'm sorry, on these boxes. I think a lot of it will be - continue to be a mixed-use development that we're doing. And obviously, opening up, if it's in a closed mall opening the center up with restaurants and entertainment and so on and it has worked very well. So, we have a number under construction or about to be under construction, but we don't really have that existing pipe that until we make more deals to buy some of the boxes back. It's not as big as you might think that it's only a handful. Now Macy's is right there, they announced some store closings none of which are ours. So, we're always very focused on knowing exactly where we might be at risk. And I would point out, very importantly when Sears went out of business, the whole market said, how are you going to survive, Sears going out of business. They had 800 department stores at that time, frankly they're down, I believe they were operating five, six, seven, eight. I think we actually have the most between us and the Taubman portfolio, but how are you going to survive, the fact of the matter is, it was a non-event to the mall customer, and If anything is we've gotten those boxes back. We've made the center better. So, as we look, we don't look at box - the changes in box as a concern, we view it really more aggressively and progressively. And that's something that will enhance the properties in the portfolio and the assets that we were worried about that couldn't survive that, basically don't exist in our portfolio anymore. So if you asked me that question 10 years ago, I might have a different answer.

David Simon:

Craig, I hope you get better prior to the Citi Conference, I'm sure you well, but you sound like you've lost your voice.

David Simon:

You will.

Vince Tibone:

Hi, good evening . Could you help me better understand, how much incremental FFO, we should expect in '24 from development and redevelopment projects that stabilized either later in '23 or slated to be finished in '24, just any color to help us better understand the timing of incremental NOI and FFO from all the development activities would be helpful?

Vince Tibone:

No, that's really helpful. I mean, is there any like for just in terms of the get the $1.3 billion that's active today, plus $800 million you're going to start. I mean what's the fair assumption for '25 - '26, in terms of level of maybe spend stabilizing, I mean I have to look at how we model it, like, is $500 million stabilizing annually at, we'll call it, 7% - 8% yield a fair assumption, or that's something I'm trying to get at like how quickly.

Vince Tibone:

Thank you. That's all really helpful color. I appreciate it.

Operator:

Our next question is from Ron Kamdem with Morgan Stanley. Please proceed with your question.

David Simon:

Sure, so - and Brian will chime in here. I will just give you some thoughts off my head and then Brian, hopefully, will agree or correct people. Three or correctly. So. I would say we saw in '23 really decent bounce-back from the tourist centers. I give you a great example. So, - and I was just happy to look at this having to look at this for now, I must have been probably doing my job. But, I noticed in Q4 as an example of the bounce back, the Woodbury Q4 sales were around $350 million. Sorry. Which to me is a real good indicator of bounce back and obviously, the highest fourth-quarter sales we've had zero in quite some time. So, I would say generally we're seeing a really good bounce-back in the tourist centers. I don't think we're the one area that the U.S. overall and obviously will have an impact on us. I do not think we'll see the Chinese. We do not expect the Chinese to come back the way they have beforehand before pandemic and they had - and just our tourist centers did outpace our sales for the portfolio for '23 on average. So, good bounce-back across-the-board and then I would on your variable rent, we continue to see that as lower percent revenues, both the vast majority as we increased our, the way to think about it and it's interesting is and again, hopefully Brian will need to correct me, but Brian's available to correct me. Our domestic operations at $0.28 of improvement Q-over-Q, that's $0.28, and within that $0.28, our variable income went down. So I think that gives you kind of a of a leading barometer, we're still working that way down and we're getting that into kind of our base rent. So and then your final on OPI, loss Q1 relatively flat Q2, Q3 and then most of it in Q4. Q2 is a little better than Q3 usual, but on the margins. And it's only growing projecting this year $0.10 to $0.15.

Ron Kamdem:

Thanks so much.

Operator:

Thank you. Our next question is from Greg McGinniss with Scotiabank. Please proceed with your question.

David Simon:

Yes, thank you for that question and the answer is no, that's pure operations. And no one-timer or sale gains or any of that are in there. And yes - I mean - just by - I mean, we had a tough '23 in our OPI. We didn't meet our both our budgeted expectations and our expectations kind of mid-year when we re-calibrated it. The team in OPI, again we're partners with, so it's not just us, where partners are making significant efforts within their own business to improve performance. And again, the overriding theme was - and we should be sensitive to this across the board, the overriding theme was the lower income consumers still, with inflation embedded even though inflation has subsided, they are still dealing with things that cost a lot more money than they used to. And the good news is, their income is increasing, but it's still not in a position that they have the discretionary income that they need and they deserve. And, we need to figure that out as a country.

David Simon:

So no - yes, so I hopefully I answered. So no one-time gains, hopefully, we're being conservative and that's kind of where the numbers are. And yes, just to take a step back, we're kind of getting OPI in this level where it was pre the extraordinary year of '21 '22, if you go back in time, this is kind of where the number was already cleared. We had - we really outpaced ourselves that extraordinary '21 and '22 and I think now we're kind of getting back to more of a more stabilized number.

David Simon:

Well, you're just talking about our tenant base now is that the question or...

David Simon:

Okay, well, like I said, the ones of SPARC and Penny I really spoke to. I mean, I think generally, the plan with that they have in place we think we're on the right track and we're all working very hard to produce these results, and hopefully, we'll do better than that. Again, I mentioned to you, we're kind of getting back to where we used to be and if you looked at it in conjunction with pre-pandemic '18, '19, that's kind of where the number was. And we really outperformed in '21, '22. And we really underperformed in '23, simple as that. Brands are good. Businesses have the right game plan and we're moving. I would - so that's SPARC, Penny, questions on that.

David Simon:

Then I'll move to your other questions. I mean. Here retail is very specific. So, I think our retailers generally and the credit is in really good shape. There's always one or two or three tenants that we are somewhat nervous about. But there - they all understand the importance of bricks and mortar, they're reinvesting in their stores. They're spending less on technology, which is good for us, putting more money back in the stores. And there are open to buy and return on investment in stores is a proven financial model. They're doing that. So I'd say generally comfortable, very comfortable with all the retailers that we're doing business with, but there will always be a couple of here and there that have to sort of through their financial issues.

David Simon:

Sure, thank you.

Hong Zhang:

Yes, hi guys. I guess, I was wondering if you could quantify the magnitude of the development drag this year. And also it seems like you saw a very strong rent and occupancy growth in the Taubman portfolio in the fourth quarter, measuring what drove that and what are your expectations for that portfolio this year as well.

Hong Zhang:

Got it, thank you.

Operator:

Thank you. Our next question is from Ki Bin Kim with Truist Securities. Please proceed with your question.

Brian McDade:

Yes, Jason, this is Brian. Yes, we did see some savings on a year-over-year. There was some seasonality to it, weather was a little bit lighter. But yes, we do expect it's sustainable.

David Simon:

Down.

Brian McDade:

Yes, remember that that was the enterprise value, added some debt. So that was an equity value. But it was - just when you say $18 billion that's enterprise value as opposed to equity because.

Brian McDade:

Sure, no problem.

Haendel St. Juste:

Hi, good evening out there.

Haendel St. Juste:

I'm doing great, sir. Hope you're well too. Question I have is on your side, but not yet opened pipeline. I think last quarter or you previously outlined is about 200 basis points of embedded occupancy from that side but not yet open pipeline. So maybe you can give us an update on where that stands today. And then also maybe what's embedded in the guide for bad debt and lease term fees this year. Thank you.

Haendel St. Juste:

Lease term fees.

Haendel St. Juste:

Thank you.

Operator:

Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

David Simon:

Yes, thank you. So, we haven't quite have the year under our belt, but very pleased with the relationship and the partnership and we continue to look at opportunities both within our pipeline and obviously, what they do on behalf of investors. So, a lot of good feedback going both ways and We we're working on one project. I mean we have one development project where we're working on together, but other than that it's a lot of corporate. There is - it is more strategic and more of a corporate discussion than property-level specifics other than one where we are partners on and going through the development process in that now in the Southeast.

David Simon:

Sure.

David Simon:

Okay. Thank you. And obviously, Tom and Brian, are available. And we really appreciate everybody's participation. Talk to you soon.

Operator:

Greetings. Welcome to the Simon Property Group Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Tom Ward, Senior Vice President, Investor Relations. Thank you, you may begin.

David Simon:

Good evening. And I'm pleased to report our third-quarter results. Third quarter funds from operation were $1.2 billion or $3.20 per share. Let me walk you through some of the highlights for this quarter. Compared to the same quarter of 2022, domestic and international operations had a very good performance this quarter, and contributed $0.17 of growth, primarily driven by higher rental income. Non-cash after-tax gain -- gains of $0.32 in the third quarter were related to the partial sale of our ownership interest in SPARC and ABG as a result of ABG selling primary shares in the quarter. Higher interest expense was a setback of $0.07 year-over-year. We had a $0.15 lower contribution from our other property investment platform compared to Q3 2022, and a $0.02 loss on mark-to-market of publicly traded securities. FFO from our real estate business was $2.91 per share in the third quarter compared to $2.83 in the prior period last year. So far, our real estate has produced $8.55 per share for the first nine months compared to $8.40 from last year. We are pleased with the transaction SPARC completed with SHEIN during the third quarter that demonstrated the value that we have created in that business. The transaction was significantly above our basis. And as a result, we recognized a gain in the corner. And the transaction ultimately reduced our ownership interest in SPARC from 50% to 33% as we have managed SHEIN as a partner. Given our lower ownership interest in the back-end weighting profitability in the fourth quarter, we now expect $0.05 lower FFO contribution from SPARC in the fourth quarter of this year. During the third quarter, the Taubman family exercised their put right on a portion of their interest in TRG. We exchange 1.725 million partnership interest units for an additional 4% ownership interest. We now own 84% of TRG. Domestic property NOI increased 4.2% year-over-year for the quarter and 3.8% for the first nine months. Portfolio NOI, which includes our international properties at constant currency, grew 4.3% for the quarter and 4% for the first nine months of the year. Mall and outlet occupancy at the end of the third quarter was 95.2%, an increase of 70 basis points compared to last year. Our third quarter occupancy is higher than fourth quarter of last year, which has not occurred historically. The mill's occupancy was 97.4%, and occupancy is above all year-end 2019 levels for all of our platforms. Average base minimum rent for malls and outlets increased 2.9% year-over-year and the mills was 3.6% year-over-year. Leasing momentum continues across our portfolio. We signed more than 970 leases for approximately $4.3 million square feet in the quarter. Through the first nine months of 2023, we signed more than 3,500 leases for 15 million square feet, which is expected to generate over $1 billion of revenue. We have an additional 1,100 deals in our pipeline, including renewals for another $400 million in revenue. We are seeing strong broad-based demand from retail community, including continued strength for many categories. Reported retail sales per square foot in the third quarter was $744 for the mills and outlets combined and $676 for mills. We continue to be active in redevelopment and new development. During the quarter, we started construction on a significant redevelopment at Brea Mall, and a new upscale outlet center in Jakarta, our first Premium Outlet in Indonesia. We completed the refinancing of 11 property mortgages during the first nine months of the year for a total of $960 million at an average rate of 6%. We have -- our balance sheet is strong with approximately $8.8 billion of liquidity. Today, we announced a dividend of $1.90 per share for the fourth quarter, which is a year-over-year increase of 5.6%. The dividend is payable on December 29th. And we also purchased approximately 1.27 million shares of our common stock for $140 million. We are increasing our full-year 2023 guidance from $11.85 to $11.95, to $12.15 to $12.25 per share. This is an increase of $0.30 at the midpoint. So to conclude, I'm pleased with our third-quarter results. Our business is performing well and is ahead of our plan. Tenant demand is strong. Occupancy is increasing. Base minimum rent levels are at record levels. And we are very experienced at managing our business through volatile periods of time. And as you all know, this is when we do some of our best work. So, we're now ready for your questions.

Ron Kamdem:

Great. Thanks so much. Just one on some of the guideposts you've given in the past. As we're flipping the calendar to 2024, you talked about sort of 3% organic growth as achievable. Just wondering how you're thinking about that and how we should think about potential interest costs, headwinds as debt sort of rolls? Thanks.

Ron Kamdem:

Great. Thank you.

Ron Kamdem:

I was just going to say if I could ask a follow up just on the $0.30 cent guidance raise. I think you talked about $0.32 cent gain and then $0.05 cents lower from the retailers. Just wondering is there any other sort of puts and takes that we should be mindful of? Thanks.

Ron Kamdem:

Thank you.

Operator:

Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed.

David Simon:

Well, thank you, Caitlin. So I would say, let me try and address your questions in no particular word. I think we'll be, year-end occupancy will be obviously higher than it is today. I don't know that it will be our highest ever, but it it'll be within distance pretty close. Even with all the volatility in the world and the market, we still expect -- we still see demand very strong. I mean, we're -- frankly, we're cautious, we're waiting for shoes to drop, but we haven't seen it on our new deals, whether it's F&B, entertainment, high-end luxury tenants, athleisure, just to name some categories. We're seeing -- we're still seeing a lot of demand on that front. And I would say from a pricing element, we feel -- I would say we feel comparable to the way we felt in ‘15, ‘16, ‘17 era, in terms of era. I guess that was almost seven, eight years ago, but lots happened over those seven or eight years. But we still feel like that's kind of -- we're in that good shape where we're driving rents up and it's okay for the retailers. They're making deals and supplying demands in our favor. Obviously we cycled through a lot of poor performing retailers due to COVID. And the ones that we are doing new deals with are excited to do business with us. So pricing is for sure going in the right direction. Occupancy is going up. And tenant demand is pretty strong across the whole spectrum. And even in certain categories, just to take luxury, yes, there are some that are being more cautious, but there's plenty that are growing new stores. So it's really retail specific. Obviously bricks and mortar through the pandemic to today has proven its value to retailers. I'm sure you hear that on the conference calls from retailers. So in that sense, we're making a lot of good stuff happen. Brian, did you have something on the occupancy?

Caitlin Burrows:

Great, sounds encouraging. Thanks.

Operator:

Our next question is from Samir Khanal with Evercore ISI. Please proceed.

David Simon:

Sure. It's interesting. I would say we're seeing pretty good tenant sales growth on the tourism properties, whether they're outlet or malls. Now, the most of our pure tourist properties are really the outlet centers, and we're seeing good growth in that category. Traffic, generally, is slightly above last year, still slightly below ‘19, but obviously conversions way up because our sales are on a per square foot basis are much higher than ‘19. I would say generally whether mall or outlet, the Sun Belt area has produced pretty good results in terms of sales year-to-date. We saw actually a decent pickup in California which was encouraging, but really good growth in a Woodbury Common that is finally getting the tourism back to where it is. And, [Prairie] (ph) has been strong in the outlet business. There's no question people are looking for a little more value or maybe they're looking for a lot more value given the higher inflation that the consumers had to deal with. Not a huge bifurcation between malls and outlets. It's very property specific. The different -- as you know, we reported flat sales basically quarter-over-quarter and there's no real difference between outlets and malls in that number. Luxury probably, well didn't probably, it did flatten out in the third quarter of this year for sure, but it wasn't across the board. It was more a couple specific retailers had a tough Q3, others were up. So it was really retailer-specific. Jewelry, malls may have a little more exposure to jewelry. So that was a category that took a little more on the chin. Yet some of our higher end retailers in the jewelry category performed well. So it was basically not a real trend. I'd say the most important thing to come away with is that the Sun Belt continues to perform well and we're seeing the tourist centers kind of make a nice comeback. They've been lagging a little bit more than the others over time, and a little bit of flatlining in the luxury category. Tom, Brian, anything you want to add?

David Simon:

Okay. Thank you.

Alexander Goldfarb:

Hey, good evening. Good evening out there, David. So I'll do one question and I'll hold the follow-up. As you guys gain leverage with the tenants, are you seeing tangible ability to get more favorable terms? One of the issues with retail over time has been the tenants, especially the larger tenants or the more anchorage or more fashion, like the hot tenants of the day are driving lease terms traditionally. Curious if you're seeing a change in that which would translate to an ability to accelerate rent growth, NOI growth, et cetera.

Alexander Goldfarb:

Thank you.

Operator:

Our next question is from Jeff Spector with Bank of America. Please proceed.

David Simon:

Thank you, Jeff. So look, I think we have the ability to develop and redevelop because we're not -- essentially what I said earlier, we're not -- listen, we've got to be stewards of capital, we've got to be very focused but we're not capital constrained the way some others might be. And our ability to invest in our portfolio is unmatched. So we intend to do that. Now at the same time, Jeff, rates are up. Returns for us have to be up. And so you haven't seen a really big change in our 8-K redevelopment, but that takes time because a lot of the stuff was put in place. But when we build something new or we redevelop, we're going to have to do a better job of leasing and returns and to warrant that capital because just about everything we do, I mean we still want to maintain our leadership position, but just about every amount of capital we spend, I have to measure it in my own mind against buying our stock back. And, I mean our stock, as you saw we bought stock back, so our stock is pretty compelling. So we want to redevelop, we want to new develop, but we've got a high hurdle that we've got to jump over. So like we've done historically, I expect us to find the right balance between continuing and to maintain our leadership position, investing in our properties for the benefit of shareholders, communities, retailers alike, but at the same time, we've got to be economic animals. And that's what -- everybody here understands that process, and that's what we try and achieve.

Michael Goldsmith:

Good evening. Thanks a lot for taking my question. David, you specifically mentioned the performance of the real estate business on this call several times, which has been strong. At the same time this quarter you sold off some of SPARC. So how can you continue to refine some of the ancillary parts of the business so that the strength that we're seeing and that you're talking about on the core business can continue to shine through?

Operator:

Our next question is from Floris van Dijkum with Compass Point. Please proceed.

David Simon:

Yeah, let me -- I'll just talk about the exchange a little bit, and then Brian can give you an idea. The occupancy is no big deal, but I'll let Brian go through that. So Taubman has the right to put their interest, their 4% interest for the next five years and it's basically at essentially appraised value. It's either a negotiation or we get appraisal firms. We decided to negotiate in good faith. We made a deal and then we issued the stock. And, I mean the reality is we're trading, Simon Property Group unequivocally is trading below appraised value. So one of the reasons we bought our stock back was, I'm not a big fan of issuing stock at this moment in time, so we'll use our capital to basically get rid of the dilution that we did issue. Now, Taubman had that right. They exercised it appropriately. We had a good faith negotiation, made a deal, and it was more or less at their appraised value. And to put it in perspective, for today's value, it's probably pretty close to where we negotiated our deal with Taubman pre-COVID and then obviously we got the COVID adjustment, but it was in that range, kind of where the deal was announced publicly. And so we're going to quarterize that dilution by buying our stock back. We started that once we made the deal. And I think the family's pretty smart. They said, Simon Property Group stock’s undervalued, and I like the dividend, and why not? So I think, I don't know what will happen next year. It could be the same thing, but at this point they have 16% left in TRG. We're happy to own 100% of TRG. I think they're happy, to do what they're doing and we'll deal with it as time goes on. But nothing can happen the rest of this year and it's sometime next year that this all recycles. So with that said, I hope that answers that, but I'll --Brian, if you want to add anything to that, please.

Floris van Dijkum:

Got it. And if I may -- if you don't mind, the -- if I recall correctly after you look at my notes but the cap rate at the time that you did the deal was, it had a six handle on it. Is that the right way to think about the appraised value for TRG?

Floris van Dijkum:

Thanks, David.

Operator:

Our next question is from Vince Tibone with Green Street. Please proceed.

David Simon:

Well, I mean, I'll see if Brian will add to it. Just remember, this is the total portfolio, so to move this thing up takes a lot, right? And spreads are just a moment -- leases that come in and go out. So you can't really look at it that way. So for us to move the entire portfolio gives you a sense of leasing spreads. Now, if you look at whatever pages on the 8-K, the new -- we added some new information there on the 29 -- 21. That -- you'll see some of that -- some of these that are going in there now are driving the rent. Those numbers now include our new leases that are driving that base minimum rent up.

Vince Tibone:

But was my statement fair though, that contracts will bump for base rents still around 3% or are they lower than that, the overall portfolio?

Vince Tibone:

And then just -- is there any color you can share about renewal spreads? And I know it's hard to move the overall portfolio with 10%, but this kind of conversation means they're not too far away from the average contractual bumps. Because if they were plus 30%, to take an extreme example, we could see that in the metrics. So I'm just trying to ultimately get some more color here on renewal economics.

Vince Tibone:

We can take it offline. I appreciate the time.

Operator:

Our next question is from Greg McGinniss with Scotiabank. Please proceed.

David Simon:

Well, I'll take the last first. So I would say higher interest rates/inflation clearly is affecting a good portion of the consumer out there. So their affordability for -- and we're seeing this most on the consumer on what I'd call the kind of the more -- the brands that are focused on the more moderate income consumer. So there's no question that that's having some impact. But the good news is you've got employment and you've got wage growth that is counter balancing that, but they're definitely being more cautious. So that's not necessarily affecting a higher income consumer to the extent that you might otherwise think, but it's clearly affecting the lower or more moderate income consumer that they're being more cautious. And from our standpoint, from a retail point of view, demand, like I said earlier, we haven't seen it affecting retailers too much in terms of their growth plans. But we obviously monitor that every day. So from our standpoint, our cost of capital is up. So any investment we make, as I mentioned earlier, is in the -- is measured against return we would get from buying our stock back to return that we would get from redevelopment or development. And given that, that's why we haven't been active on the acquisition front. And I don't expect that to really change. In addition, we're always looking at monetizing our assets, whether it's real estate or otherwise, and to the extent that we can make the math work and we create liquidity through asset sales, the math is very compelling for us to do that to buy our stock back. And so you'll see more of that trend continue.

David Simon:

Thank you.

Mike Mueller:

Yeah. Hi, just a quick one here. I know this is a bit of a hypothetical, but do you think you would have bought stock back if you didn't issue the shares to Taubman?

Mike Mueller:

Got it. Okay. And real quick, and just in case I missed this, was there any change to the OPI guidance that's embedded in your current FFO outlook?

Brian McDade:

Yeah,

Mike Mueller:

Got it. Okay, thank you.

Operator:

Our next question is from Craig Mailman with Citigroup. Please proceed.

David Simon:

Well look, I think domestic retail is not a lot of transactions, but we have assets throughout the world. That's one. Two is obviously we've got investments in our OPI category. But frankly, domestic assets other than maybe some of our residential stuff, hotel stuff, there's just not a lot happening. And we might see some stuff, but I think that won't be really driving kind of the activity that we would anticipate.

David Simon:

Thank you.

Linda Tsai:

Hi, thanks for taking my question. About 6% of ABR is on month-to-month leasing and then 12% expiring for ‘24. How much of the month-to-month is getting converted to permanent or should that number grow? And then in terms of the 12% expiring in ‘24, what's been addressed from a renewal standpoint from where you stand today?

Brian McDade:

And Linda, you can see the material change, Q2 over to Q3, we've cleared about 2.2 million square feet out of that category. It's just a matter of processing. We talked about it on our last call. There's just a lag effect on the processing of those leases. So we do expect that to continue.

Operator:

Our next question is from Haendel St. Juste with Mizuho. Please proceed.

David Simon:

Sure. Well, generally, as we said earlier in the year, we expect to be more or less flat. So that's kind of what our expectations continue to be in terms of retail -- reported retailer sales. Again, we feel pretty good about the higher income consumer. We've also got a balancing act in terms of -- some of our value-oriented centers will maybe play a more important role for our consumer today that they might not have otherwise played last couple of years. But, it's unknown. I mean, we're being extra cautious because of the -- inflation is still a little bit there, still taking a bite out of the consumer and obviously you've got rates that are beginning to filter through the economic system. So cautious, flat, we're not anticipating a downturn, but not a robust sales growth for the fourth quarter, relatively flat.

David Simon:

Sure. Yeah, I think the -- it's a little bit dependent upon the real estate. So, and what we're trying to accomplish and what the benefits of that real estate are and where the market is for that. So, for instance, when we build a new residential apartment house, we look at kind of where the value and the cap rates for that are. They may be obviously lower than our own, but to the extent that we feel like we might sell it and make the arbitrage, we'll do that. Again, if we've got an asset that's a 6% cap rate, we're building to an 8%, that's creating value. On the other hand, if we have an 8% asset that we're building to a 6%, it ain't going to happen. So there's no -- we have themes. We have points of view. But just like anything else, every transaction we do, every redevelopment we do really is grounded by what we're trying to accomplish with that real estate. So -- but overall, again, like I said earlier, we've got to push it higher because, our cost of capital regardless is up across the board. So we don't have the luxury to build dilutive deals. And as you know, we've never really bought dilutive. We've never really built dilutive. And we certainly don't anticipate in doing that today. We've always had a spread to our financing and to the quality of what we built. We expect that to continue but that -- obviously those thresholds have been raised.

David Simon:

Thank you.

Juan Sanabria:

Saving the best for last. I love it. Thanks for the time. I'm just curious if you could comment on kind of the watch list you've commented about the consumer, but maybe what the bad debt has been here to date with the historical levels is in your perspective as you think about ‘24.

Juan Sanabria:

Yes sir.

Brian McDade:

No, I think that's right, David. It is certainly expanded, but by only two or three names. And it's at a relatively low point relative to history.

Brian McDade:

It's on 22.

Juan Sanabria:

Thank you.

Operator:

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mr. Simon for closing comments.

Operator:

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Operator:

Greetings, and welcome to the Simon Property Group's 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host, Mr. Tom Ward, Senior Vice President of Investor Relations. Thank you. Mr. Ward, you may begin.

David Simon:

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 $0.08 of growth, primarily driven by higher rental income. Higher interest income, and other income of $0.04. 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 2023 compared to $5.58 in 2022. Our real estate business is performing ahead of our plan and overcoming the headwinds from higher interest expense and we are 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 in 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 $56.27 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 5.0 million square feet for the quarter, and we are up to 11 million square feet year-to-date. We have 1,100 deals in our pipeline, including renewals for approximately $470 million and occupancy cost 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 are 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 are proud to announce our dividend of $1.90 per share for the third quarter. That's a year-over-year increase of 8.6%. The dividend will be payable on September 29. We have now paid over $40 billion in dividends since we've been public. We are 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 $0.05 at the bottom end of the range and $0.02 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 head 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.

Stephen Sakwa:

Thanks. Good afternoon, David.

Stephen Sakwa:

Good. I just wanted to follow-up on your leasing comments in the pipeline. Everything sounds really good and maybe even getting better as the year unfolds. So 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?

Operator:

Thank you. And our next question comes from the line of Ms. Caitlin Burrows with Goldman Sachs. Please proceed with your question.

David Simon:

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 will always recycle assets. We find to the extent that we can do that and generate more liquidity. We find our – and not just 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. 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. We've done it as thoughtfully in terms of maintaining the balance sheet as anyone. So that's been another key component of our ability to grow yet recycle. So I don't think I'm signaling, but maybe you have these epiphanies, so maybe it's possible, right, that there'll be some – we'll be more active on reallocating capital to different assets than we have today.

Operator:

Thank you. And our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

David Simon:

Yes. Look, I would say, unquestionably the – some of the best retailers in the world like Kering or an LVMH Group, have the best brands, and they do the most volume. They build the best stores. They think 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 maintained their brand. They have loyal customers. So there's no better companies to do business with that belief, and we aspire to be more like them than, than anything. And I think 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 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 2022. 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 2019. But I don't remember the exact number. But they can give it to you later. So one of the interesting things is LVMH Group, and really if you look at our 8-K, they're now our – in our top 10 tenants. 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. And the fact that we do so much business with them is something that we're extremely proud of. And we will – I don't like the word lean in, but we will do as much as we can to continue to foster those relationships. And that is a huge differentiating point that we have at Simon Property Group. So it's all systems go there. Yes, sales will flatten, they'll go up, they'll go down, but their commitment to their customer and what they do in the stores, I think goes unabated. And they really – I admire the fact that they take – 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 are 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, we'd like to follow kind of where they're headed because we think there's great business to do together. I hear you typing. Is that – another question?

David Simon:

We're kidding. We're only kidding. We'll talk to you later. Thanks, Alex.

Operator:

Thank you. And our next question comes from the line of Vince Tibone with Green Street. Please proceed with your question.

Brian McDade:

So this is Brian. We are still hovering right around 200 basis points of unopened. That ebbs and flows as you might imagine every month given 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, as retailers open later this month and into September and October.

Vince Tibone:

Yes. That makes sense. That's all really helpful color. I appreciate that. My next question, I was hoping you could discuss how demand today [differ by] retail format and geography. I'd be curious to hear anything between malls and outlets and also between gateway markets and suburban centers.

Vince Tibone:

Great. Thank you.

Operator:

Thank you. And our next question is from Ronald Kamdem with Morgan Stanley. Please proceed with your question.

David Simon:

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 – 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 generally positive about our ability to grow comp NOI. But it's all the likely suspects and it's all the same metrics that we have to produce to generate that. And 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 just common sense, we'll be able to pay higher rent because they'll be more productive. It's really that simple. So – but Ron, it's all the same stuff. And we're focused on hitting all of those cylinders certainly to finish this year, but also in 2024, 2025. And the added benefit that we have in 2024, 2025 is that we've got a lot in the pipeline that will finally open.

David Simon:

Sure.

Floris Van Dijkum:

Thanks. Hey, good afternoon, guys. I had – 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-on 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 in that. So there's a lot of luxury tenants, which typically pay significantly higher rents. So presumably, it has a greater impact on your NOI and ABR than your – than the percentage just in terms of occupancy?

Floris Van Dijkum:

Thanks, David.

Operator:

Thank you. And our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.

David Simon:

I think, Jeff, we're going to more or less stick to our programs, but what we've done historically, I think it's been the right strategy. We'll nick and neck, I mean, we've had good experience by and large, not perfect, but good experience 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 more here versus there, do we want to sell this and reinvest that. 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 – 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 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 kind of we think is the right thing to do. So that's really it. I wouldn't make – this is not like – we're not trying to like here we go, something is big around the corner. It's just – we've done this, and we just wanted to point it out.

David Simon:

Sure.

Michael Mueller:

Yes. 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?

Michael Mueller:

Okay. Thank you.

Operator:

Thank you. And our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

David Simon:

I just think it – most importantly, it reinforces the importance of our product and it reinforces how retailers feel about our – the mall and the outlet business. So it's a great sign. I mean it's a great sign that we have new concepts. And I would say, generally, the 30% has really developed over the last, say, two months and whether it's direct-to-consumer, whether it's the luxury, whether it's a restaurant business, whether it's entertainment, we're seeing entertainment pickup like we did pre-COVID. So 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. And that level is certainly much higher than I've seen since I mean, it goes – I'm going to say, almost seven, eight years because the 2020 – I'm sorry, in 2019, we probably didn't have that level of percentage of new tenants. So it's clearly higher than it was in the 2019, 2018, 2017 level, and it kind of goes back to where we were in the 2014, 2015, 2016 level. So it's a good sign for sure.

Operator:

Thank you. And our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

David Simon:

No, no, no, I know that. But the two – what did you say 2%?

David Simon:

3%, let me start there. So yes, we're feeling very comfortable that we'll be above the 3%. The after-tax gain is associated with the ABG raising of primary capital, which we get diluted down. So it's a – we have a dilution gain after tax, it was $0.07.

Juan Sanabria:

Okay. And that wasn't in the prior guidance, I'm assuming, correct?

Juan Sanabria:

Thank you.

Greg McGinniss:

Hey. Good afternoon. So quick two-parter on Taubman from 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 planning to do so? Or maybe that's one of the assets that you might be looking to recycle?

Brian McDade:

Yes, 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 rent contribution in Q2 of last year than they did this year.

Brian McDade:

$0.07.

Adam Reuille:

Yes.

Greg McGinniss:

Okay. Thanks.

Haendel St. Juste:

Hey. Good evening out there. David, can you talk about…

Haendel St. Juste:

I'm not too far from you. 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 will do or impact that will have on the business. And maybe some commentary also on year-to-date debt how that's trending and early thoughts on potential improvement on that line item in 2024? Thanks.

Haendel St. Juste:

Okay. Thank you.

Operator:

Thank you. And our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.

David Simon:

I would hope so, yes.

David Simon:

Not one of my qualities, but that was the most succinct answer that all day. Do you have another question, Linda?

David Simon:

Yes. I think Brian and Tom felt because we're doing – and these are only consolidated assets, so we have a – we have a big franchise operation with Starbucks in terms of our – 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 kind of – we just felt like it would be better to separate it. For your – believe it or not, for your benefit.

David Simon:

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 outlined our returns in our 8-K. 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 over – it's not even material. So there is some profit embedded in there, but it's – we view it more as an amenity that we can make some margin on. And 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 we can kind of give you order of magnitude of revenue and expense. The only problem this year really some of these just came on board. So I'd say to you in 2024 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's help?

David Simon:

Sure. Thank you.

Craig Mailman:

Good afternoon. David, just a quick clarification on one of the earlier questions about the $0.07 net gain. 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 or maybe this wasn't the sole driver, but maybe something operational, and 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 margin?

Craig Mailman:

I am. Thanks, David.

Craig Mailman:

We need to talk about.

Operator:

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Greetings, and welcome to the Simon's First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host, Mr. Tom Ward, the SVP of Investor Relations. Thank you, and you may proceed, sir.

David Simon:

Thank you. Good afternoon. And I'm pleased to report our first quarter results. We are off to a good start with results that exceeded our plan. First quarter funds from operation were $1.03 billion or $2.74 per share. Let me walk through some variances for this quarter compared to Q1 of 2022. Domestic operations had a very good quarter and contributed $0.15 of growth, primarily driven by higher rental income. Our international operations also performed well and contributed $0.02 of growth. These positive contributions were partially offset by declines from the headwind from a strong U.S. dollar of $0.02, higher interest rate expense of $0.05, lower lease settlement income of $0.06 compared to Q1 of 2022, and we had a mark-to-market gain on publicly-held securities of $0.06 for the quarter, and a $0.13 lower contribution from our other platform investments compared to Q1 2022. Let me walk you through some of that and remind everyone that for OPI results, we are generally on our plan. Please keep in mind OPI was up against very tough comparisons from last year's Q1. This quarter also includes one-time transaction cost from ABG's recent acquisition activity, JCPenney's deployment of their new beauty initiative, and investments related to physical stores, IT, and one-time reorganization expenses, all flowing through our FFO number. The retailer part of our OPI investments has seasonality associated with it generally with losses in the first quarter and the majority of our profit in the fourth quarter and should be modeled accordingly. Overall, we continued to expect OPI to meet our 2023 guidance we provided at the beginning of the year, which is similar -- which will be a similar FFO contribution that was compared to 2022. Now, domestic property NOI increased 4% year-over-year for the quarter. Portfolio NOI, which includes our international properties at constant currency grew 3.9% for the quarter. Our mills, malls, and outlets occupancy at the end of the first quarter was 94.4%, an increase of 110 basis points compared to the prior year. Mills was 97.3%, and TRG was 93.3%. Importantly, average base minimum rent was $55.84 per square foot, an increase of 3.1% year-over-year. Leasing momentum continued across the portfolio. We signed more than 1,200 leases for more than 5.9 million square feet in the quarter. We have an additional 1,500 deals in our pipeline, including renewals for approximately $570 million in gross occupancy cost. More than 25% of our leasing activity in the first quarter was new deal volume. We're seeing strong broad-based demand from the retail community, including continued strength for many categories. By the end of the second quarter, we expect to be approximately 75% complete with our 2023 expiration. Retail sales momentum continued. Reported retail sales per square foot reached another record in the first quarter at $759 per square foot for malls and premium outlets combined, an increase of 3.3%. All platforms achieved record sales level, including the mills at $683 a foot, a 2.2%, and TRG was $1,100 per square foot, a 6% increase. Good news is, tourism is returning with our tourist-oriented centers outperforming the portfolio average in terms of sales. Our occupancy cost at the end of the first quarter was 12%. We opened our West Paris Designer Outlet in Normandy, France last week, our 35th international outlet center. During the quarter, construction restarted on our upscale outlet center in Tulsa, Oklahoma, which will now open in the fall of 2024. We have several densification projects under construction and a pipeline of identified projects that includes approximately 2,000 residential units and hotel rooms. Now, turning to the balance sheet. We completed a dual-tranche U.S. senior notes offering that totaled $1.3 billion at a combined average term of 20 years at an average coupon of 5.67%. We closed on our new $5 billion multi-currency revolving credit facility with a maturity in 2028. Importantly, the pricing is unchanged from our prior facility. The traditional secured mortgage markets continued to support the refinancing of our assets across geographies and property types. Our A-rated balance sheet is as strong as ever. We ended the quarter with $9.3 billion of liquidity. Today, we announced our dividend of $1.85 per share for the second quarter, a year-over-year increase of 9%. The dividend is payable on June 30 of this quarter. Guidance for this quarter -- given the results of this quarter and our current view of the remainder of the year, we are increasing our full year 2023 guidance range from $11.70 to $11.95 per share to $11.80 to $11.95 per share compared to last year of $11.87. This is an increase of $0.10 at the bottom end of the range and $0.05 at the midpoint, excuse me. And I'm pleased with our first quarter results. Tenant demand is excellent, and brick-and-mortar stores are where shoppers want to be. And even with the economic uncertainty, we are running ahead of our internal plan. Excuse me, here. I have some kind of a frog in my throat, but we're ready for questions.

Caitlin Burrows:

Hi, good evening, everyone. Maybe regarding upcoming lease maturities and what that means for potential cash flow changes going forward, the ABR for '23 maturities is around $62 versus the portfolio overall at $56. So, would you think it's fair to say that the rest of the '23 maturities may face a headwind on renewal, but then the '24 maturities, which are 12% of rents and have an ABR of $54, have significant opportunity? I'm guessing it's not that straightforward. So, wondering if you could discuss that rent maturity and mark-to-market outlook.

Caitlin Burrows:

Okay. Thanks.

Steve Sakwa:

Yeah. Thanks, good evening, David.

Steve Sakwa:

Good. I was wondering if you could just maybe shed a little more light on the leasing demand that you're seeing. Is there anything that you could discuss with us on kind of price point either luxury versus more moderate tenants, anything by region, anything by product type, whether it's the mills, the outlets, or the traditional malls? Just looking for a little color given what we're going through and kind of what your tenants are telling you. Just kind of curious where the strongest demand is and maybe to the extent that there are any weak spots, what would you call out?

Steve Sakwa:

Great. Thank you.

Operator:

Thank you. The next question comes from Ronald Kamdem from Morgan Stanley. Please proceed with your question, Ronald.

David Simon:

Sure. Yeah, we're going to be 2%. And I would hope we would do at least 3% plus. I mean, there is some -- it's very interesting, the first six months from the retail point-of-view, comps will be tough. But we think the second half for the retailers will be more positive, lots of economic uncertainty out there with the big macro things. But assuming sales come in the way we initially budgeted, we should be hopefully at least 3%. If we have an uptick in sales, we'll do better.

David Simon:

Thank you.

Alexander Goldfarb:

Thanks, and good evening, David.

Alexander Goldfarb:

So -- I'm doing well. So, first, thank you for all the detail on the retailer platform and the emphasis on the seasonality, that's helpful. My question is bigger. You guys seem to have a lot of positive trends with the redevelopment program coming back, retailer demand healthy, obviously, some of your competitors are having trouble on the capital side, it strengthens your portfolio. So, my question is, as you look over the next few years to invest incremental capital, is your focus still on the best returns are internal in your existing malls and adding more densification? Or are you starting to see some external opportunities where it may make sense to use capital? And whether that's domestically or abroad? Sort of curious.

Alexander Goldfarb:

You said it.

Alexander Goldfarb:

Okay. Thank you.

Operator:

Thank you. The next question comes from Vince Tibone from Green Street. Please proceed with your question, Vince.

David Simon:

Sure. All right. So, I think we will do selective JVs on certain of the residential development. So, that's -- and it may -- it also may be that we could potentially bring in third-party equity too. So that would -- we'll look at each deal individually, but that's certainly a possibility. And then I think, Vince, essentially, we're looking at to reach all those 2,000 units. It's really probably a five-year build process. We expect to start several this year. But yet, we're, frankly, being a little bit cautious. We're still permitting some things in California and the Northwest. So, we don't -- we're going to just see how the world is, but we don't have to make a decision yet. And I would think, at the end of the day -- rather Brian give you more scientific number, because a lot of these are part of redevelopments too, and so to really isolate the hotel apartment or rental stuff, I'd want to give you a number, but I -- my instinct would be probably about $1.5 billion. But I think Brian can give you more detailed number, but somewhere in that range. And these go from Austin, Texas to Orange County, California to Seattle, some hotels in Florida, some residential in Florida, multifamily. So it's kind of where you'd expect it to be where supply and demand is in our favor. But we're considering building a hotel in Cape Cod, because we think there's a good supply-demand imbalance there. So, it really is across. And every, I'd say generally as we get back real estate through our redevelopment efforts, the big focus is on where we can add some mixed uses, because we do think like what we did in Buckhead is having a tremendous impact on the overall value of that real estate. So, not only does -- is it accretive from a value point of view just on the cost to the return on the build versus what's the value of that is after it's built, but also the residual benefits that we see from them all.

David Simon:

That's a complicated one. We are -- that's a complicated one, but we're -- every day, we make progress. So, it's terrific real estate, very complicated transaction, but we continued to make progress. But no final decision has been made to do it. But I expect one to be made over the next few months.

David Simon:

Thank you.

Nick Joseph:

Thanks. It's actually Nick Joseph on here with Craig. David, just on executive comp and the $24 million one-time cash bonus related to OPI, I know at least one of the proxy analysis firms has raised some concerns on it. So, I was hoping if you could give some more color on both -- rationale behind it in terms of the amount and the structure of it ahead of the vote later this week?

Nick Joseph:

Thank you.

Operator:

Thank you. The next question comes from Greg McGinnis from Scotiabank. Please proceed with your question, Greg.

David Simon:

All terrific questions. And we highlighted that just to give you a sense of the scope of the business that's going on here. So that's a huge number. That's just one lease -- one level of activity in a year and it's bigger than some companies that exist today. So, let me try to unpack it. It does include renewals. It's just SPG. It's just domestic. And if you look at the renewals in the new business, there is a really good uptick from kind of the in-place income on that. And that will come in not really this year, but over '24 and '25 as those stores get opened. And I think it just adds a sense of our future growth that we see in front of us from our existing portfolio. But I'm not in a position to break it up between renewals and new incremental business. But you'll see that flow through the NOI in the upcoming quarters.

David Simon:

Correct. Yeah, it includes both, correct.

David Simon:

Thank you.

Derek Johnston:

Hi, everyone. Good afternoon. Occupancy is now at 94.4% and that's just 70 bps below pre-pandemic levels. Do you expect to surpass 4Q '19's 95.1% occupancy this year? And given the leasing demand we've discussed, how is the team weighing occupancy versus rates now that the gap is so narrow?

Derek Johnston:

All right. Thank you.

Operator:

The next question comes from Floris van Dijkum from Compass Point. Please proceed with your question, Floris.

David Simon:

I think that's a fair statement. And I would say that the pipeline is similar to what it's been. Right, Brian?

David Simon:

So, I do think as we've been saying over the last few couple of quarters, I mean, we have finally turned the corner on lease spreads, demand, better properties, more commitments from retailers, more -- and more retailers wanting to open stores, all driving pretty good demand, which allows us to get to spreads that we're accustomed to. But we were flat-lining pre-COVID. Obviously, we got hurt during COVID and we've bounced back nicely. So from that standpoint, it's good to see.

David Simon:

Yeah. Look, to separate, just to be clear. So, we bought into the asset management business and we bought -- we partnered with Jamestown for a couple of -- several reasons, but a couple to highlight here. One is, they're really good asset managers. Two is, they have a development capability that's very interesting to us. And they have excellent institutional relationships. And we think with our partnership, we can grow that business. We did not -- other than -- there is a big future development -- master plan development that they're working on in Charleston where we did partner with them directly. We did not buy any of their existing real estate that's owned by the various funds, whether it's the German funds or the premier fund. Jamestown is in the process of raising their 32nd German fund. They have a lot of separate account interest. It's really good for us, because we get to learn those institutional investors better and more. And I just think we're early days there, but I think the thesis that we had going in, continues to be very, very valid. This is a long-term relationship that I think will grow. Eventually, I see us partnering with institutional money that will be managed by Jamestown that will partner with us to build XYZ or buy XYZ or build a big community in Charleston -- North Charleston. So, yeah, I think all of the elements of potential growth with Jamestown are out there. We do like the asset management business as a platform. We dipped our toe into it. But I think, again, just as we look at the landscape for real estate owners and managers, we think -- when we look at Blackstone, when we looked at our Brookfield, obviously, they own, they asset image for us to have some scale or some role in that business, I think ultimately we will annur to the benefit of the Simon Property Group. And that's what we're after.

David Simon:

Thank you.

Craig Schmidt:

Thank you. Given the seasonality of the OPI business, which quarter do you expect that number to turn positive?

Craig Schmidt:

Thank you.

Operator:

The next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question, Juan.

David Simon:

Yeah. One of the comments I made was, we expect to be basically 75% by the end of Q2. It's just a process. It's just -- we're negotiating, the retailers are negotiating, the stores are open and operating. But we -- it's just a typical drawn-out process that is the, so to speak, the art of the negotiation, but a lot of that's already handshake committed to that we're just going through and processing now.

Juan Sanabria:

Great, that was my follow-up. Thank you.

Mike Mueller:

Thanks. I was wondering, has there been any notable change in lease duration for what you're signing so far in 2023 compared to last year?

Mike Mueller:

Okay. That was it. Thank you.

Operator:

Thank you. The next question comes from Haendel Juste from Mizuho. Please proceed with your question.

David Simon:

We have a tough connection. Did you guys hear that?

Haendel Juste:

Sure. Sorry about that. So my question was on, David, I think you mentioned earlier in the call that new leases were 25% of the deal volume in the first quarter. So I'm curious if that's why CapEx was up I think 8% in the first quarter. And also if this level of new leases, 25% or so would be kind of the right way to think about new versus renewal leasing going forward? Thanks.

Operator:

Thank you. Moving on to the next question. The next question comes from Ki Bin Kim with Truist. Please proceed with your question.

David Simon:

Well. I would say, generally speaking, we -- just to give you a sense, our sales for our tourist properties that we identify was up 8% quarter-over-quarter, right, generally?

David Simon:

So, the bottom line is, it is really going to result in overage rent that we've probably flat-line more or less on those properties. So -- and that will manifest itself once we reach the breakpoint, so later in the year. But we're seeing -- we're starting to see, I mean like Vegas, we have our tourist property in Florida, which has been pretty strong, but we're seeing more and more international tourism there. Woodbury, here in the New York area -- I'd say, here in Indianapolis, but in the New York area, is really starting to see a lot more international tourism. California has been kind of the weak link. But we're starting to see more and more sales there. And then, Vegas is just going crazy. Vegas -- we -- and we have really important exposure in Vegas between Forum and Crystal, our two outlet centers. Vegas is as good as it gets. It's -- the casinos, what's going on with the city, the movement from California to Nevada. All of the football, baseball, sporting activity, Formula One, it just -- it's a great place to have a lot of retail real estate, and we're seeing real benefits in that. So, this will manifest itself in the fourth quarter as we're seeing that, but as we reached the breakpoints, but we're finally seeing the international tourists to come back to the States. Little weaker dollar helps, and obviously all the -- I think, finally, you don't have a vaccine card or whatever is required to come here, all of that kind of yesterday's news, as of today or yesterday. So, we're -- I think we're finally starting to see that come back like it was pre-pandemic.

Brian McDade:

Yeah, that's exactly right, the outstandings on our revolver are denominated in euros and they serve as a net investment hedge against our asset base in Europe. We do have a heavy -- a sizable cash balance as we did our offering earlier in this year and pre-funded the balance of our unsecured maturities for this year. So, we're carrying cash and we'll pay off the June maturities at par at maturity.

Brian McDade:

Sure.

Michael Goldsmith:

Good afternoon. Thanks a lot for taking my question. David, your base minimum rent growth is accelerating. You have a nice SNO pipeline. You're talking about blowing past your 2% NOI growth guidance for the year. All sounds great. I guess the question is, how sustainable is this algorithm? How long can it continue? What are the factors that are ultimately going to weigh on this momentum that you have?

Michael Goldsmith:

Thank you very much.

Operator:

The next question comes from Linda Tsai from Jefferies. Please proceed with your question, Linda.

David Simon:

Well. I think you have to look at it, the individual investments. And like for instance Authentic Brands Group is a growth machine. They're buying brands left and right. They're buying Billabong. They are buying Vince. They've got a huge pipeline. So, I've really seen that company growing, growing, growing. SPARC and Penny are -- SPARC is opening new stores, getting better at ecommerce, getting better operating. I'm sure -- they added Reebok to its portfolio last year, that still hasn't been fully integrated. So, I expect EBITDA growth to accelerate in the later half of '23 and '24. RGG, which includes Rue La La and Gilt, and importantly, Shop Premium Outlets. Remember we contributed that to that joint venture. Shop Premium Outlet is on fire. We're growing our GMV by leaps and bounds. I really think this was an idea we had years ago. We kind of got it off the ground, maybe not quite as good as [indiscernible] but we got it off the ground. We merged it in the RGG. And it's really rocking and rolling. We've got -- we're signing up good retailers all the time. That's got a great story to it. And we have some smaller investments in that. So, I think I see a real growth pattern in all of those. Penny is reinvesting. I think Penny has found its mojo. It's getting better brands in the store. We're making the stores look better. It's got growth in beauty that's investing. So the retailer side of OPI has a little more exposure in the economy because retail just does. But I think they all in their own way, have their own growth story. And -- but you know what, we're economic animals to extent that we get fair value. We've got lots of opportunities to invest in our company or other transactions that will add value. So, we look at these very clinical. And I just remember we've created a lot of value here with very little capital. And what's amazing, it's in our earnings now and which is a good sign because it means it's earning money. And given the small investment, it's been -- if you just want to look on return on our earnings and return on investment, it's been outstanding. So, very proud of it, very profitable. Not our core focus yet, while -- I used the executive team here to leverage our capabilities, intellectual firepower, et cetera, to make those companies better and I think we've done a pretty darn good job. We've had good partners across the board. So we've done it in a very prudent way and it's been very beneficial for us and I expect growth to continue. We'll have more ups and downs, it won't be a straight line, but I have -- I expect more growth from that category, same time 10 years from now or five years from now, we don't have to own any of these companies.

David Simon:

It's not very big today, what is it like 3%, 4%?

David Simon:

3%. So, we're a big company. So to do a lot, to get to, like 8% to 10%, we take a lot, would be a few years down the road, but I don't see any reason why -- we certainly should try to strive to get up there if we can do it accretively in this kind of the 7% to 8% range, but that would be roughly $500-plus million of NOIs. So it's not -- it's going to take time.

David Simon:

Thank you.

Haendel Juste:

Hey, there, thanks for letting me back in. I wanted to get to the second part of my question, and then I have one more. So the second part of my earlier question was, if you are expecting new lease volume to be about 25% of the overall leasing volume as it were in the first quarter over the near term?

Haendel Juste:

Okay. And then the second question I have was on foot traffic. We saw some recent placer foot traffic data for March, indicating that year-over-year foot traffic at enclosed retail malls is down 8% year-over-year in March. I'm curious if you're seeing similar trends at your properties? And if you think that's a reflection of the consumer and that's coming up in lease negotiations in the current environment? Thanks.

Haendel Juste:

Okay, thank you.

Brian McDade:

Thank you.

David Simon:

Okay, thank you and I appreciate the questions, and we'll talk soon. Thank you.

Operator:

Greetings. Welcome to the Simon Property Group Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tom Ward. You may begin.

David Simon:

Good evening from Phipps Plaza, where we recently completed our transformation, including a new office building, a new Nobu Hotel and a Life Time resort. I'm pleased to report our fourth quarter and full year results. We generated approximately $4.5 billion in FFO in 2022 or $11.95 per share. On a comparable basis, full year FFO per share was $11.87, an increase of 3.8% year-over-year. We returned approximately $2.8 billion to shareholders in dividends and shares. And total dividends today paid since our IPO now totals approximately $39 billion. We invested approximately $1 billion, including accretive development projects and expanding our other investment platform into the growing asset and investment management businesses with our Jamestown partnership. These consistent strong results are testament to the quality of our portfolio, a relentless focus on operational and cost structure, disciplined capital allocation and our team's commitment to our shoppers and communities. Fourth quarter funds from operations were $1.27 billion or $3.40 per share. Included in the fourth quarter results was a net gain of $0.25 per share, principally from the sale of our interest in the Eddie Bauer licensing JV in exchange for additional equity ownership in Authentic Brands Group, Authentic. We now own 12% of Authentic valued at approximately $1.5 billion. Let me walk through some variances for this quarter compared to Q4 of 2021. Our domestic operations had a very good quarter and contributed $0.23 of growth, driven primarily by higher rental income and with some lower operating expenses. These positive contributions were partially offset by higher interest expense of $0.03 at a $0.15 lower contribution from our other platform investments. 2021 was a great year for our retailers. However, in 2022, Forever 21 and JCPenney were affected by inflationary pressures and consumers reducing their spend. Despite not achieving the same profitability that we did in 2021, we are pleased on how we and the management teams dealt with the unanticipated external environment. Turning to domestic property NOI. We increased 5.8% year-over-year for the quarter and 4.8% for the year. Portfolio NOI, which includes our international properties at constant currency grew 6.3% for the quarter and 5.7% for the year. Occupancy for malls and outlets at the end of the fourth quarter was 94.9%, an increase of 150 basis points compared to prior year and an increase of 40 basis points sequentially. Renewals occupancy was 98.2%, and TRG was 94.5%. Average base minimum rent was $55.13 per foot, an increase of 2.3% year-over-year. For the year, we signed 4,100 leases for more than 14 million square feet. Over 2 years, we've now signed 8,000 leases for more than 29 million square feet, and we have a significant number of leases in our pipeline that will open for a late 2023 and 2024 openings. Reported retailer sales momentum continued. We reached another record in the fourth quarter at $753 per square foot with the malls and outlets combined, an increase of 6% year-over-year. All platforms achieved record sales levels, including the mills, it's $679 per square foot which was a 5% increase. TRG was $1,095 per square foot, an 11% increase, and our occupancy at the end of the fourth quarter was 12%. We opened a new development in 2022, our 10th premium outlet in Japan. Construction continues, our new outlet in Normandy, France, west of Paris. This will be our second outlet in France and our 35th international outlet. Our international outlet platform is a hidden jewel for SPG. As a frame of reference, it is bigger and much more profitable with much higher sales per square foot than another public company's portfolio. We completed 14 redevelopments, and we will complete another major redevelopment project this year at some of our most productive properties. In addition, we expect to begin construction this year on 6 to 8 mixed-use projects. All of this will be funded with our internally generated cash flow. Now turning to other platform investments in the fourth quarter, it contributed $0.23 per share in FFO compared to $0.38 in the prior year period. For the year, OPI contributed $0.64 in FFO compared to $1.07 in the prior year. We are pleased with the contribution from our OPI investments, especially given our de minimis cash investment we've made in these companies. Turning to the balance sheet. We completed refinancing on 20 property mortgages for a total of $2.3 billion at an average interest rate of 5.33%. Our A-rated balance sheet is as strong as ever. Our fixed coverage ratio is 4.8x, and we ended the year with approximately $7.8 billion of liquidity. In 2022, we paid approximately $2.6 billion of common stock dividends in cash. We announced $1.80 per share this quarter, which is a 9% increase over the same period last year. The dividend is payable at the end of March -- at the end of this quarter, on March 31. We also repurchased 1.8 million shares of our common stock at an average purchase price of $98.57 in 2022. Moving on to '23. Our comparable FFO guidance is $11.70 to $11.95 per share. Our guidance reflects the following assumptions

Ronald Kamdem:

Great. Just starting with the guidance of at least 2% sort of organic growth next year, obviously, occupancy is already back to 95%. Just a little bit more color on that. How much of that is occupancy gain? How much of that is rent bumps? Just trying to get a sense of what's driving that.

Operator:

Our next question comes from the line of Steve Sakwa with Evercore ISI.

David Simon:

Well, we have a unique relations, relationship with Authentic. That's a very important partnership, so to speak, both as a big shareholder, but also we're 50% owners together, 50% for us, 50% for Authentic in SPARC. And we have a different ownership structure with JCPenney. We don't really have any plans to -- for SPARC to buy additional retailers. We're very opportunistic on that. We had a very busy year last year with Reebok, where SPARC became the operating -- domestic operating partner for Reebok. More -- a very complicated deal. As you remember, we've had -- depressed earnings. We mentioned that to you early last year, that it did depress earnings because we had -- we knew we had some losses to occur this year. So hopefully, we'll be past that this year. But we really don't have any plans to acquire anything. If we do, it will be opportunistically. And just to -- we really -- we've done our -- most of our work has been with -- on the bankruptcy front or where somebody wanted to unload a business. And -- but generally, there's not a lot of distress in retail right now. I'm not saying it won't develop in the year. But there are some brands out there that are in trouble that obviously people know about. But we don't see playing in any of those situations.

Derek Johnston:

Can we get a more granular update on Phipps Plaza? The repositioning has been open for, I'd say most, or at least part of 4Q. So I guess how is it tracking versus plan? What changes in traffic are you seeing? Or any notable change of in-line rents? Any dates would be appreciated. And then I guess lastly, the project seems to have increased your plan for accelerating some other mixed-use endeavors, I guess, with Jamestown, any more information would be helpful.

Operator:

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

David Simon:

All right. You're introducing -- I'll take you through a tutorial because I like you, Alex, so here we go. SPARC operates the domestic business of the brands Lucky, Aéropostale, Forever 21, [Eddie Bauer], okay, Brooks Brothers, et cetera. It license the brands from Authentic and it pays a royalty fee to Authentic, and then we, and our partner, Authentic, and it pays rent to landlords, including Simon that will pay rent to -- Forever 21 could be in a Vornado property. In fact, it is in Times Square pays rent to Steve Roth and Vornado. And that business has operating profit. And we share in that 50-50 with Authentic. So we actually, now that we converted and exchanged our license, that we own together. Now we have historically done the license business on a JV basis. We've decided over time to exchange that into stock of Authentic. And that's why we were not a shareholder in Authentic, but eventually it become a 12% shareholder in Authentic through the exchange of our interest in the JV license business, for stock into Authentic. Authentic is a big company. It does $1 billion of revenue, close thereabouts. But it owns the license of many, many brands beyond SPARC. It owns its partnership with David Beckham and its partnership with Shaquille, Elvis Presley, Juicy Couture and on down the list. You can Google it, it will give you all the names, so. But SPARC is essentially the retail operating company. So when you think of SPARC, you should think of it similar to any other retailer like American Eagle or anybody else that operates stores, operate e-commerce, et cetera, it does wholesale. The only difference it pays a royalty to Authentic. It does not pay a royalty to Simon Property Group. So the only vagaries that Simon Property Group has is, in fact, what the operating profits of SPARC are. And in the case of '21 versus '22, the big difference was essentially Forever 21 because that teenage consumer obviously cut back with the rapid increase in gas prices and inflation and the uncertain economic environment. So I know we're not allowed, but can we let Alex -- I'm asking Tom Ward, who's the police of the call, can we ask Alex if he understands this? Okay, Alex. do you understand it? Was I perfectly clear?

David Simon:

Well, I mean, it's more than -- sure, sales are important, but there's gross margin. They also sell wholesale, okay? So Brooks Brothers does have wholesale accounts. So it's more -- but it generates EBITDA basically through running the business, which includes stores, e-commerce, wholesale, and certain other ventures. Authentic, because we equity account, they're a very profitable company with high gross margins. It's an asset-light company, essentially. We take our share of earnings from them, net income because they are a taxpayer, et cetera. But together, all of those businesses, SPARC, RGG, which is our partnership with Michael Rubin, who owns Fanatics, and Authentic, all of that rolls through OPI. And OPI contributed $0.64 out of $11.87. So it's in that range, to give you a sense. So $0.64 out of $11.85. So -- but that -- hopefully, that helps explain it. Lastly, you got it?

Vince Tibone:

Could you provide some color on leasing economics and how those are trending in the current macro environment? Just given current NOI guidance is about 2%, which is lower than average contractual bumps and there should be some occupancy upside, this just seems to imply leasing economics aren't great. But I know it's contrary to what you said on recent calls. So can you just help me better understand kind of the dynamics at play here with guidance and maybe where leasing economics are right now?

Vince Tibone:

Just one follow-up. Like is variable lease income -- do you expect that to continue to trend down just as you unwind maybe some COVID lease modifications? Or how should we think about that part of the puzzle to going forward?

Operator:

Our next question comes from the line of Craig Mailman with Citi.