Simon Property Group, Inc. (NYSE:SPG) Q1 2023 Earnings Call Transcript

Simon Property Group, Inc. (NYSE:SPG) Q1 2023 Earnings Call Transcript May 2, 2023

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. 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.

Tom Ward: Thank you, Claudia, and thank you for joining us this evening. Presenting on today’s call is David Simon, Chairman, Chief Executive Officer and President. Also on the call are Brian McDade, Chief Financial Officer; and Adam Reuille, Chief Accounting Officer. A quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to variety of risks, uncertainties, and other factors. We refer you to today’s press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today’s date.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today’s Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to one hour. For those who would like to participate in the question-and-answer session, we ask that you please respect our request to limit yourself to one question. I’m pleased to introduce, David Simon.

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.

Q&A Session

Operator: Thank you very much, sir. We will now be conducting a question-and-answer session. The first question comes from Caitlin Burrows from Goldman Sachs. Please proceed with your question, Caitlin.

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.

David Simon: Yeah. Thank you, Caitlin, for the question. One of the numbers I threw out there while I was coughing during my presentation was, our renewals and new leases will add $570 million of basically gross rental income. In that is included some renewals, which is the roll-off of the numbers that you quoted. We are renewing above our overall — above our expiring rents. So, even with that said, we expect to continue to have positive rental spreads even with the higher number for the balance of this year and certainly in ’24. So, the outlook on that front is very positive and unchanged since our commentary at the — certainly at the beginning of this year and fourth quarter of last year as well.

Caitlin Burrows: Okay. Thanks.

Operator: Thank you. The next question comes from Steve Sakwa from Evercore ISI. Please proceed with your question.

Steve Sakwa: Yeah. Thanks, good evening, David.

David Simon: How are you, Steve?

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?

David Simon: Well, I mean, I know this is kind of in the face of a lot of economic uncertainty, but demand really has not changed one iota. Now, let’s talk about the luxuries side. Clearly, they’re running up against tough comps compared to Q1 of last year. But those brands and those companies think long-term. And I mean, the best example is, if we were at the opening of Tiffany store in — on 57th Street, you have to take a long-term view when you open stores like that. And all of those brands whether LVMH Group, Kering, Richemont, et cetera, they’re looking at ’23, ’24, ’25, we’re — making commitments. Nothing there is really abated. So all systems go on that front, even though they are running up against tough comps compared to Q1.

You look at the restaurant category, very strong demand, lots of new deals across lots of price points from P.F. Chang’s, Cheesecake Factory to some of the chef-driven brands. So, all systems go there. You’ve got the box demand. Lots of new business with Dick’s, Life Time Fitness, the best of the best (ph). Department store demand by is happening. Then you look at the athleisure, Vuori, ALO, Lululemon, Brooks Brothers, all of that pretty much across the board, we’re seeing new stores. So, I said this at the end of last year, early this year, even with — even though comps are going to be tougher this year in terms of sales compared to last year, the demand on leasing really has not changed. We’re seeing the entertainment concepts come back, theatre business is positive.

So, we feel it’s — we’re feeling very good. Obviously, we’re cautious. We don’t expect sales like they were over ’21 and ’22, and we planned accordingly. But demand, we check every day and there’s certainly a couple here or there that slowed down, but nothing really noteworthy. VF, North Face, Timberland, Cotton On, they’re all growing and it’s all pretty healthy.

Steve Sakwa: Great. Thank you.

David Simon: Thank you.

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

Ronald Kamdem: Great. Thanks. I remember last quarter we talked about domestic property NOI growth of at least 2%. You’re thinking about looking at 1Q already at 4%, just maybe can you give us an update how you’re thinking about that number for the rest of the year? And looking at the guidance raise, how much is that property — core property NOI versus maybe other factors? Thanks.

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.

Ronald Kamdem: Thank you.

David Simon: Thank you.

Operator: Thank you. The next question comes from Alexander Goldfarb from Piper Sandler. Please proceed with your question, Alexander.

Alexander Goldfarb: Thanks, and good evening, David.

David Simon: How are you?

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.

David Simon: Yeah, I don’t see — let me do it in pieces with no particular order. I do see — I still do feel strongly that the best use of our capital is making our existing portfolio better and better. I think that we have spent $8-plus billion over the last several years upgrading the portfolio and doing new development. So, we continue to see that as our best use. I don’t see — and as I mentioned in the call, I mean, we have a residential pipeline that looks really attractive in hotels that are generating really good accretive values of around 2,000 units. Now, that’s not going to happen overnight, but that’s going to happen over the next few years. So that for us is a real opportunity. I don’t see much of our external capital doing any kind of acquisition opportunities internationally.

I still think we’ll grow our International Asia outlet portfolio with redevelopment and new development over time, essentially, recycling the capital, the cash flow that we have there and accretive new development. And where we — we’re looking at everything domestically here and nothing really has — I think, I could say this wet our whistle here to make us — I can say that, right? Okay, so nothing here that would…

Alexander Goldfarb: You said it.

David Simon: Yeah. I said it, true, good point. Nothing here that would really like we’re not jumping up and down to do external transaction. So it’s mostly the same stuff that we’ve been doing and just keep plugging away on that. And look, I do think we have to respect the capital markets. The capital markets are telling all companies to be more prudent, to do more accretive investments, and we are listening very closely to that.

Alexander Goldfarb: Okay. Thank you.

David Simon: Thank you.

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

Vince Tibone: Hi, good afternoon. I wanted to follow up on your comment regarding the 2,000 residential and hotel units in the upcoming pipeline. Just curious how quickly you could start these projects, how much spend this could potentially represent, and this is something that you’re going to maybe do through joint ventures or will be wholly-owned on the balance sheet? Kind of any color on some of these points would be helpful.

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.

Vince Tibone: Got it. No, that’s all super helpful. And then, somewhat related follow-up question. Just curious if you could share any updates on the Carson outlet project, and if you think you’d be moving forward there in the near term?

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.

Vince Tibone: Great. Thank you.

David Simon: Thank you.

Operator: Thank you. The next question comes from Craig Mailman from Citi. Please proceed with your question, Craig.

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?

David Simon: Yeah, look, I think this was essentially paid ’23, ’24 executives last February, so about 15 months ago, fully disclosed in an 8-K. Our rationale and reasoning by the comp committee was fully disclosed in our filed proxy as well as supplemental lever to our shareholders. I think if you look at the company in totality, which is important — I mean, we can always take a moment in time to say why this, why that, but if you look at the history of the company, you look at the executive comp, you look at our stock program, you look at our burn rate, you look at our G&A as a function of our NOI or asset value, we are at the lowest of the low. Anybody can pick up one particular number they don’t like. But if you look at it in totality, we are absolutely proud of how we run this business.

If you want to get more detail, I encourage you to talk to Head of our Comp Committee or Lead Independent Director, any shareholder can do that. But I would encourage everyone to look at the totality of our history and then come to whatever conclusion they think. And we’re very happy to talk to anybody that would like to go through it from a shareholder point of view.

Nick Joseph: Thank you.

David Simon: Thank you.

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

Greg McGinnis: Hey, good evening, David. I just want to make sure that I understand that $570 million gross rental income number that you mentioned. Is that new and renewal leases? Is it on a pro-rata basis inclusive of international and TRG? How much of that, I guess, is incremental to in-place rents? Or is all of it? And then what’s the timeframe contributing?

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.

Greg McGinnis: Okay. So, it is both though, because you mentioned $100 million of new income last quarter of new NOI.

David Simon: Correct. Yeah, it includes both, correct.

Greg McGinnis: Thank you.

David Simon: Thank you.

Operator: Thank you. The next question comes from Derek Johnston from Deutsche Bank. Please go ahead with your question, Derek.

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?

David Simon: Well, let me take that part first. I do think — the good news is that when we’re — and again every lease is different, every relationship is different, rollovers — some rollovers go down. But I would say, generally speaking, we are finally seeing renewals that are overall above the expiry rents. So that — and part of that is just supply-demand is in our favor and we are getting — because one is, I think, from the retailers’ point of view, there is a real appreciation for bricks-and-mortar, one. Two is they know we’re a landlord that they can rely on and that we’re going to do the right thing to maintain and reinvest in these properties and we have the capability of doing so. And generally, it’s more demand that we’re seeing, and the retailers are in — having survived COVID are in better shape and want to grow their business.

So that is all happening. And getting into your first point, will we beat it this year? It will be close. I’m not — I can’t guarantee it, but I am hopeful that we will beat that number, in the not — certainly within the next 12 months, assuming we can continue to maintain reasonably decent economic conditions.

Derek Johnston: All right. Thank you.

David Simon: Thank you.

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

Floris van Dijkum: Thanks. Good evening, guys. David, so maybe, if you can give us a little bit more of an update, I know, in the past you’ve talked about your signed non-open pipeline being around 200 basis points. Your leased occupancy just increased by 110 basis points. Is that SNO pipeline relatively similar? And then maybe, I mean, the — if I look at the base rent going up by 3.1% approximately and if you get about 10% of your space back, I mean, it assumes pretty healthy re-leasing spreads, if my math is correct. I mean, how should we be thinking? Clearly, it appears that leasing spreads are accelerating in your core business.

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?

Brian McDade: Yeah. Floris, we’re still hanging right around 200 basis points at this point in the year.

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.

Floris van Dijkum: And if I can maybe follow up, David, on Jamestown, and you mentioned external capital. How are you thinking about — how is the Jamestown acquisition embedding in? And is that potentially a source of external capital that you can bring into some of that — the apartment or hotel investments, and/or how are the synergies between those two businesses working out, in particular, I’m thinking like Atlanta with the street retail right near your two fortress malls?

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.

Floris van Dijkum: Thanks, David.

David Simon: Thank you.

Operator: The next question comes from Craig Schmidt from Bank of America. Please proceed with your question, Craig.

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

David Simon: I think it will be — no, Craig, you know about retailers. So just to reinforce the retail part of the OPI, remember, the vast majority of the OPI value is in our ABG stock, but we still have a very profitable business with both Penny and SPARC, and then other investments that are in that including RGG and so on. So, just important to put it in context. So the retail part, the pure retailer part, Penny and SPARC, is seasonal. Last quarter, Q1 of ’22 was just stimulus whatever was really tough comparison for the retail — retailer part of OPI. With that said, it will — we expect it to be profitable in Q2 and Q3. And — but the vast — the majority of — the vast majority of it will be Q4, like all the other retailers.

So, when you see retailers report this quarter that are public, I think generally, they’ll probably all have tough comps against Q1 of last year. Yes, the comps get a lot easier. This is a lot more information for a business that’s — we have no cash investment remember, and it does create a little volatility of our earnings for better or worse. In this case, this quarter, it’s worse, fourth quarter will be much better, does create a little volatility. But it will — you’ll see it map out — part of that OPI map out just like other retailers where the loss will be in Q1, profitability Q2 and three and then 70% — 65%, 70% in Q4.

Craig Schmidt: Thank you.

David Simon: Thank you.

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

Juan Sanabria: Hi, good afternoon. Just hoping to get a little color on the month-to-month leases, they ticked up from about 4.5% to 7.5% sequentially in the first quarter while you did a fantastic job chopping wood and reducing the rest of the ’23 expiration. But just curious on why the increase in the month-to-month basis and what’s going on behind that?

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.

Brian McDade: If you look historically, Juan, it’s normal seasonality of that line items at this point time of the year.

Juan Sanabria: Great, that was my follow-up. Thank you.

Operator: Thank you. The next question comes from Mike Mueller from J.P. Morgan. Please proceed with your question, Mike.

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?

David Simon: Not really. Not at all.

Mike Mueller: Okay. That was it. Thank you.

David Simon: Thank you.

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

Haendel Juste: Hey, good evening. David, I think earlier you mentioned that new leases were 25% deal volume in the first quarter. I guess, I’m curious if that’s why CapEx picked up 8% in the quarter. And if this is also a new level — new versus renewal leasing that you should expect near term? Thanks.

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

Brian McDade: Haendel, can you repeat your question, please? You kind of broke up a bit there.

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.

David Simon: Yeah, I think — I guess on the TA line, there is some — we are doing more deals. So there is probably more TA associated with it. So I’m not sure the CapEx line or you are looking at the TA line. But generally, the answer is yes, we’re doing a lot more new business and in some cases that does mean a little bit more TA. And I still had a hard time on the last part. Did anybody hear it? No, we didn’t hear — unfortunately, we didn’t hear it, but if you want to call back with that, we’re happy to answer that.

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

Ki Bin Kim: Thanks, good afternoon. Going back to your comments on international tourism, David, can you remind us where international tourism levels are for your portfolio today versus, let’s say, pre-COVID? And if it should return to that normal level, what does that mean for Simon’s NOI or earnings, however, you want to look at it?

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?

Brian McDade: Yes.

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.

Ki Bin Kim: Okay. And a quick question for Brian. You guys have a pretty healthy cash balance of over $1 billion, yet you still carry a balance in a revolver. I’m sure there is a pretty logical simple answer to this, but just curious.

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.

Ki Bin Kim: Okay. Thank you.

Brian McDade: Sure.

Operator: Thank you. The next question comes from Michael Goldsmith from UBS. Please proceed with your question, Michael.

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?

David Simon: Well, look, I mean I think — I see it continuing. We see good demand. We are tied to the general economic condition, but supply-demand is in our favor. I think our spot in our industry is well established. We have the confidence with our retail partners. We know what we want to do with our properties. We’re not — we don’t 1,000, we make mistakes all the time, but we know where we want to position them. And so, I hate using kind of this, but I — it’s really going to be the external environment that could slow this down, meaning what happens, do we do a recession or that? And I honestly think some of these markets are — when people ask me that I actually think if we do go into recession, it will be “kind of regional recession.” I just don’t see markets right now, they may flatten, they may not grow as much, but I don’t see Florida’s, Texas, Nevada’s of the world, Georgia’s, I just don’t see them slowing.

I don’t see them going into a recession. So if there is one, we’ve always heard, well, it’s going to be a regional one, this one might be one. But who — I really don’t know, but I think that’s what slows us down. Obviously, we do have some headwinds with higher interest rates. We do have debt maturity at low rates, but rollover will cost us some growth. But we just have to kind of go through that and deal with it.

Michael Goldsmith: Thank you very much.

David Simon: Thank you.

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

Linda Tsai: Hi. How do you think about the longer-term growth profile of the OPI business versus growth in overall portfolio NOI? Do you think the OPI business requires more consistent investment before it generates more stable returns?

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 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.

Linda Tsai: Thanks for that. And then just a follow-up. Do you have a sense of how much mixed-use development could become as a percentage of portfolio NOI? And could you give us a sense of what that might represent today?

David Simon: It’s not very big today, what is it like 3%, 4%?

Brian McDade: Yes, about 3%.

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.

Linda Tsai: Thank you.

David Simon: Thank you.

Operator: Thank you. The next question — the final question comes from Haendel Juste from Mizuho. Please proceed with your question.

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?

David Simon: Yeah. I think that’s a reasonable number, yes, in that range.

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.

David Simon: Well. Yeah, that’s — I’m glad you asked that because I have — we keep track of that ourselves. And just to give you March over March — ’23 over March ’22, we are 105.5% for malls, 105.6% for mills and 120.2% for outlets for 108% above last year this time. In January and February, we were actually much higher month-over-month. So, we — for our portfolio, we’re above — traffic is above where it was this time last year, year-to-date, month-on-month.

Haendel Juste: Okay, thank you.

David Simon: Thank you.

Brian McDade: Thank you.

Operator: Thank you very much. There are no further questions at this time. I would like to turn the floor back over to David Simon for closing remarks. Thank you, sir.

David Simon: Okay, thank you and I appreciate the questions, and we’ll talk soon. Thank you.

Operator: Thank you very much, sir. This does conclude today’s teleconference. You may disconnect your lines at this time, and thank you very much for your participation.