Simon Property Group Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 6, 2023

There are 14 speakers on the call.

Operator

Greetings. Welcome to the Simon Property Group 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Tom Ward. You may begin.

Speaker 1

Thank you, Smolgy. Good evening from Atlanta.

Speaker 2

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 Roy, Chief Accounting Officer. A quick reminder that statements made during this call may be deemed forward looking Statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to a variety of risks, Uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward looking statements.

Speaker 2

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 ks filing. Both the press release and the supplemental information are available on our IR website at investors. Simon.com. Our conference call this morning, this afternoon will be limited to 1 hour.

Speaker 2

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.

Speaker 1

Good evening from Phipps Plaza where we recently completed our transformation, including a new office building, a new Nobu Hotel And a Lifetime resort, I'm pleased to report our 4th quarter and full year results. We generated Approximately $4,500,000,000 in FFO in 2022 or 11 point and $0.95 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 $2,800,000,000 To shareholders in dividends and share repurchase and total dividends today Paige, since our IPO now totals approximately $39,000,000,000 We invested approximately $1,000,000,000 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 a 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, 4th quarter funds from operations were $1,270,000,000 For $3.40 per share, included in the 4th 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 $1,500,000,000 Let me walk through some variances for this quarter compared to Q4 of 2021.

Speaker 1

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 and a $0.15 lower contribution from our other platform investments. 2021 was a great year for our retailers. However, in 2022, Forever 2021 And J. C.

Speaker 1

Penney 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 4th quarter was 94.9%, an increase of 150 basis points compared to prior year and an increase of 40 basis points sequentially.

Speaker 1

The mill's occupancy was 98.2 percent and TRG was 94.5%. Average base minimum rent It was $55.13 per foot, an increase of 2.3% year over year. For the year, we signed 4,100 leases for more than 14,000,000 square feet. Over 2 years, we've now signed 8,000 leases for more than 29,000,000 square feet and we have a significant number of leases In our pipeline that will open for late 2023 2024 openings, Reported retailer sales momentum continued. We reached another record in the 4th quarter at $7.53 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 $6.79 per square foot, which was a 5% increase TRG was 10.95 4 foot, an 11% increase and our occupancy at the end of the 4th quarter was 12%.

Speaker 1

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 2nd 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.

Speaker 1

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 4th 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 $2,300,000,000 At an average interest rate of 5.33 percent, our A rated balance sheet is as strong as ever.

Speaker 1

Our fixed Coverage ratio is 4.8 times and we ended the year with approximately $7,800,000,000 Of liquidity, in 2022, we paid approximately $2,600,000,000 in Common stock dividends in cash, we announced $1.80 per share this quarter, which is a 9 We also repurchased 1,800,000 shares of our common stock at an average purchase price of $98.57 in 2022. Moving on to 2023, our comparable FFO guidance is 11 point And $0.70 to $11.95 per share, our guidance reflects the following assumptions: Domestic property NOI growth of at least 2%, increased interest expense compared to 2022 of approximately $0.30 to $0.35 per share, reflecting current market interest rates On both fixed and variable debt assumptions, similar OPI investment contribution FFO contribution Compared to 2022, the continuing impact of the strong U. S. Dollar versus the euro and the yen, No significant acquisition or disposition activity and a diluted share count of approximately 374,000,000 shares. To conclude, we had another excellent year Effectively navigating external headwinds that included rising interest rates, strong U.

Speaker 1

S. Dollars, inflation In a somewhat softening economy, we have consistently posted industry leading results Through our hard work, innovation, great people and great assets, and we are continue to be excited about Our plans for 2023, if you come to Atlanta, you will see what we're doing. And it's a great example of the future growth prospects of our company. And we'll now allow for Q and A. Thank you.

Operator

At this time, we will be conducting a question and answer session. One moment while we poll for questions. Our first question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Speaker 3

Great. Just starting with the guidance of at least 2% sort of organic growth 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.

Speaker 3

Just trying to get a sense of what's driving that. Thanks.

Speaker 1

Well, I think it's all the above. It's rent bumps, it's occupancy gain. We still and this is very important to underscore. We still have a lot of openings scheduled for the latter half of twenty twenty three And the early part of 2024, so we're not going to see the full contribution Of those tenants open until essentially really a run rate of 24, I'd say, sometime in 2024. Now you ask why?

Speaker 1

Well, because we have a high quality group of retailers Opening these and it takes a while to build out their quality stores, but it's Occupancy gains, it's rental increase it's spread increases. It's a reduction in our temporary tenant income because we're leasing space permanently. And it's Basically, assuming a lot goes into this, but it's basically assuming relatively flat sales. Now if you remember last year, we said up to 2%. This year, we obviously blew past it.

Speaker 1

It was total for the domestic Properties are clearly 5%, roughly 5%, 4.8%. So we're hopeful we'll do better. But Again, we still have to make assumptions and that's why we like where we're at. And the biggest assumption That is somewhat of the unknown is sales.

Operator

Our next question comes from the line of Steve Sakwa with Evercore ISI, please proceed with your question.

Speaker 4

Yes, thanks. Thanks for that answer, David. I guess as you think about your other platform investments and some of the monetizations that you talked about with Authentic Brands, how do you sort of think about Those on a go forward basis, again, maybe making new investments in new retailers that may be struggling at this time?

Speaker 1

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 and And we have a different ownership structure with JCPenney. We don't really have any plans to For Spark to buy additional retailers, we're very opportunistic on that. We had a very busy year last year with Reebok, where Spark became the operating Domestic operating partner for Reebok, more a very complicated deal. As you remember, Yvette did depress earnings. We mentioned that to you early last year that it did depress earnings because we had we knew we had some losses to incur this year.

Speaker 1

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 We're a 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 Developed in the year, but there's some brands out there that are in trouble that obviously people know about, but We don't see playing in any of those situations.

Operator

Our next question comes from the line of Derek Denton with Deutsche Bank. Please proceed with your question.

Speaker 5

Hi, good evening, everybody. Can we get a more granular update on Fitz 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?

Speaker 5

Any deets would be appreciated. And 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. Thank you.

Speaker 1

Yes. So it really just opened. So the hotel opened at the end of October November, but No. It's really new. The office literally the first tenant just moved in January, Mid January, we just did a tour of that.

Speaker 1

We still have a lot of lease up. Just to give you a rough number, Three investment ships did in the low 20s of NOI. We think it will be stabilized close to 60 And we'll have invested around $350,000,000 in it over that period of time. So again, we don't we're a big company. We don't really get into like granular detail, but We basically increased the we'll increase the NOI by about $35,000,000 Remember, this was a Belk's department store.

Speaker 1

So in the Belk's department store, we couldn't lease up that wing. We now have A plaza that has been created external, we announced Hermes opening into the plaza and part of the wing that Really was difficult to lease with Belk's as the anchor. We had an unbelievable Lifetime Resort. If you haven't seen What they build or their product, both with lifetime work, the pool and the Restaurants and the services and the salon and obviously all the fitness activities, I'd encourage you to do so. And we have a Class A plus office, the best in Buckhead that just opened.

Speaker 1

So again, Low $20,000,000 $60,000,000 to $350,000,000 investment is the math. Now Again, we're doing and you mentioned Jamestown. Jamestown Investment is In the Investment and Asset Management business, so these mixed use developments that I mentioned in my call text, 6 to 8, we're doing all of those with by ourselves or with Partners that we've used before. So that really isn't with Jamestown. Again, we look at the Jamestown relationship, Future endeavors that we can do together or in partnership, but we're very active in Building out our platform now and Seattle is an example, we're about to start a Residence Hotel, which finally got approved and that's going to start construction, we can go through the list.

Speaker 1

But all that Simon Property Group owned just like FITS, which we own 100% of Nobu. We own, obviously, the Lifetime is a lease and then the office building we own too, which is all 100% owned asset. So I don't want you to confuse those 2, but that's the rough math on FIPS. And then the true lease up of FIPS, again, which goes back to the my earlier comment On the NOI, the true lease up of Fitch, because you have Yves Saint Laurent and some of the high end brands Building out their stores, it's not a 3 month build. It's in many cases 9 months through a year.

Speaker 1

The true offering that FITS will have will really show in 2024 When all of these retailers open the stores. So Christian Louboutin, Hermes and Acris and on and on and on. But most of those will either open late 'twenty three or 'twenty four and that's when FIPS really will be These things don't just split the switch and it opens. So that gives you a sense of it. We think that True pro form a, this will ultimately manifest itself in year 2025 or even in 2026.

Operator

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

Speaker 6

Good evening out there, David. So question on the retailer brand portfolio And your equity stake in Authentic Brands, you guys have a headwind or sorry, not a headwind. You guys have a fluctuating contribution From the retailer, it's just based on their actual sales, right? Because it's not rents, it's based on sales. Yet, I'm assuming you get some sort of recurring cash flow From the intellectual property that you own in Authentic Brands, managing the brands and all that.

Speaker 6

So I'm just Trying to understand, did you guys sell more of the brand equity and exchange it for a bigger stake of Authentic Brands? How does your income mix Switch from being solely sales dependent to being more consistent, whether it's managing or other sorts of More regular fee income versus volatility from however many jeans or shorts are sold in a given quarter?

Speaker 1

You're confusing, I'll take you through a tutorial because I like you, Alex. So here we go. Spark operates the domestic Business of the brands, Lucky, Aeropostale, Forever 21, 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 it will pay rent Forever 21 could be in a Varnado property. In fact, it is in Times Square and it pays rent to Steve Roth and Varnado.

Speaker 1

And that business has operating profit and we share in that fifty-fifty With Authentic, so we actually now that we converted and exchange our license that we own together. Now we have historically done the license business on a JV 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 have 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 $1,000,000,000 of revenue, close thereabouts, But it owns the license of many brands beyond Spark. It owns It's partnership with David Beckham, it's partnership with Shaquille, Elvis Presley, Juicy Couture and on down the list, you can Google it, it'll give you all the names.

Speaker 1

So but Spark is essentially the retail So when you think of Spark, you should think of it similar to any other retailer like American Eagle Or anybody else that operates stores, operates e commerce, Etcetera, it does wholesale. The only difference is it pays a royalty to authentic. It does not pay a lot of the Simon Property Group. So the only vagaries that Simon Property Group has is in fact What the operating profits of Spark are? And in the case of 'twenty one versus 'twenty two, 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.

Speaker 1

So I know we're not allowed, but Can we let Alex I'm asking Tom Ward, who is the police of the call, can we Ask Alex if he understands this now. Yes. Okay. Alex, do you understand So was I perfectly clear?

Speaker 6

So if I take away what you're saying, SPG lives really on the retail sales and performance. Your 12% stake in AB doesn't generate any fees to you. So again, the focus is really the earnings derived purely from sales. There's not any sort of recurring

Speaker 1

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 that it generates EBITDA basically through running the business, 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 taxpayer, etcetera, but together, all of those Businesses

Speaker 2

Spark,

Speaker 1

our 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 $11.85 $0.87 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. Last chance, you got it?

Speaker 6

I got it. No problem. Thanks, David. Thank you.

Operator

Our next question comes from the line of Vince Tibbuni with Green Street. Please proceed with your question.

Speaker 6

Hi, good afternoon. Could you provide some color on leasing economics and how those are trending In the current macro environment, just given your current NOI guidance is about 2%, which is lower than average contractual bumps and there should be some occupancy 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.

Speaker 1

Yes. Look, I would say we have positive spreads across the portfolio in renewals And new leases versus existing leases for News Fix. And again, we also have operating expense increase because we're not immune No. Security cost increases, housekeeping, all of the normal operating expenses To some extent, our fixed CAM bumps don't cover that. We're also projecting flat sales.

Speaker 1

Obviously, to the extent that sales outperform that, we'll outperform as well. And we We don't have these cases when we're adding great retailers, great restaurants to our portfolio. We have to take out the tenant That was in many cases temporary. You have to take that out and you basically have 9 months of downtime Where you have no income for it. Now, like we did last time, Vince, we said up to 2, we did 4.8.

Speaker 1

I'm hoping to do better, but those are basically the determinants and that's why we said Better than 2%, but we have some operating expense increases, real estate taxes Unbelievably, continue even though we're the goose that continues to lay the golden eggs for all of the communities in which we operate. Our taxes continue to go up. We have operating expenses that go up with inflationary pressures. We had downtime, we had flat sales, and we lose temporary income while we're retenning and going to physical, Whether we're going to permanent income. All of that's great news, but our rent spreads Positive renewals are positive and we and that's been the difference then obviously we'll throw COVID out.

Speaker 1

But even the trend prior to COVID, renewals were under pressure as you know, No, I mean, the demand continues to be very good.

Speaker 6

And then 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 too going forward?

Speaker 1

Yes. We have budgeted it Basically down slightly because number 1 is to the extent that a tenant renews the lease, we're getting some of that overage Into the base rent, If you remember out of bankruptcy, Forever 21 pays basically percentage rent to All of its landlords, us included, it had a tough year last year, as I mentioned earlier. And we're budgeting basically flat this year. So there's a lot that goes on that Kind of you got again separated between overage and percent rent. It's a little bit of a crystal ball.

Speaker 1

There are always retailers that do well, some that slow down. We're pretty good at anticipating who's going to be great, who's not, but We're not the ones other than Forever 21, we're not the ones putting the stuff in the stores itself, okay? Forever 21, you can blame it on us, okay? So I hope that helps.

Speaker 6

No, thanks. Yes. No, it's very helpful. Thank you.

Speaker 1

Thank you.

Operator

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

Speaker 7

Great. Thank you. David, just you had mentioned Forever 21, J. C. Penney's, managed to some inflationary headwinds in their business.

Speaker 7

I'm just kind of curious With your purview through Spark and other investments, just how you think the retailers That your investors and maybe other tenants that people have concerns about or have been talked about in the news are positioned heading into 2023 from A gross margin management perspective and just balance sheet and how much risk you see in this current environment versus Maybe the kind of the headline fears that are in the market?

Speaker 1

Yes. Right now, we feel Really good about our retailers. I think they were very focused on entering 2023 With good clean inventories, we feel like most of them have managed that. I ask my leasing folks all the time any pullback on demand. It's Not really happened.

Speaker 1

So we feel good about that. Demand continues to Be generally very strong, and I think they Really, because of the bounce back out of COVID, really Got the benefit of kind of getting their house in order. So I think on a credit side, We're feeling very comfortable, right, Brian? Yes. Yes.

Speaker 1

Our watchlist has been lower since it's been in years. The tenant community rebuilt its financial position during COVID and is coming out of it in a much better place. So Nothing that obviously you've got a couple of big names out there, but we really have very little exposure to them. And in some cases, we'd like to most of them are boxed. They're mostly in strip centers.

Speaker 1

So The ones that we're that we have, we like the box back, we think we can do something better with them. So I'd say generally, knock on wood, I think credit side is pretty good and demand is good. And they ran they December was very spotty for a lot of retailers. On the other hand, After Christmas, most had a really good January. And again, I think the mistake we made, Simon Property Group made, is that, Again, Spark was profitable, even with even though it didn't meet the financial Results of what and again, we shouldn't dwell on this too much because again, $0.64 out of $11.87, But it's important just so we'll do a little miacalpa.

Speaker 1

We made the mistake that thinking 2021, we budgeted basically flat to 2021 and 2021 was For a couple of the brands, they're just extraordinarily profitable. We made some tactical mistakes at Forever 21. We brought in a new CEO to rectify those mistakes. She's doing a terrific job. So we're very pleased there.

Speaker 1

We also are very pleased with JCPenney. It's unbelievably profitable EBITDA. You can see the EBITDA. There's some public filings out there. But it is it didn't have the 2021 year of 2021, but we're very pleased to Where that company is positioned and we're extremely pleased with the management team And all that they're doing to reinvigorate the brand that means so much To that consumer in those communities and we're taking a different tact than others that have Managed or own that brand.

Speaker 1

We're actually reinvesting in that company to make it

Speaker 8

To make

Speaker 1

it very important for those communities. So Very pleased with how we're positioning Penny, but it had EBITDA, I don't know if I can Close it, but it had a lot of EBITDA, okay? So, and our partner Brookfield, we'll let Brookfield take We'll let Brookfield announce it if they do their I'm kidding, but it was very profitable from an EBITDA point of view. So We're very pleased there with the brands, but we did make the mistake of thinking 2021 would repeat. And then obviously, You had a lot of volatility from a macro point in 2022 with huge increases in interest rates, Huge increase in price and food and energy cost that the consumer was whipsawed And we felt the impact of it.

Speaker 1

It's stabilized now, we believe.

Operator

Our next question comes from the line of Craig Schmidt with Bank of America. Please proceed with your question.

Speaker 6

Thank you. Given the China reopening, I wonder if you could outline how these visitors Could impact your coastal premium outlets and your dominant coastal malls?

Speaker 1

Well, I think we haven't seen the benefit, but just walking, we I mean, I I don't want to get into the kind of the geopolitics of what's going on, but we're We think there's a real benefit to our landmark assets that have Always been shopped by the Chinese consumer or the Asian consumer. We're starting to see that a little bit, but we're not planning for that to really accelerate 2023, but we're hopeful that it will.

Operator

Our next question comes from the line of Forrest Van Dykem with Compass Point, please proceed with your question. Thanks. David,

Speaker 8

You had talked last quarter actually in response to a question I asked about recovering back to 2019 levels Of same property NOI, which we reckon to be about $6,200,000,000 But obviously, that includes or that does not include some of your retailer investments. But depending on how you slice it, I'm just trying to do the math imply that you would get to around 3.7 percent NOI growth to get back to those levels. You're clearly not guiding to that yet. You're guiding to 2%. But what are the headwinds, if you will?

Speaker 1

Well, I think you can't You really should just focus on domestic. To put the retailers in there, There's too much volatility. It's not something we look to. We're focused on Our domestic property, I don't want to get back to 2019 numbers before we were shut down by the pandemic. The short answer is, we will get there on a run rate by the end of this year.

Speaker 1

That's the short answer. And You shouldn't put the retailer NOI in there. It's again, that's you got to remember, we have basically No cash investment in Spark. So and I know we could talk about it all day, but it's When you think about Simon Property Group, we want you to think about those investments as a gift repurchase, okay? You get this great profit company that owns all this real estate that's redeveloping it, great balance sheet, the ability to make Smart investments with an unbelievable return on investment outside its core business, and that's what you get With a seasoned team that's experienced from recession to credit crisis to a shutdown in a pandemic, Okay.

Speaker 1

And we've managed it through it all. So the bottom line is Our domestic property NOI, because of the delay in some of these openings, we will get back On a same property basis, because remember, the other thing for us, we have properties in and out. So you can't go back to 2019, The portfolio is different, but if you do the same portfolio that we own today versus the same portfolio that we

Speaker 8

And David, that includes the $6,200,000,000 was included your stake in Taubman as well. But I'm just curious because

Speaker 1

We're not just limiting Calvin in it. This is just the domestic property NOI. So we're not even including our International NOI. So what we can give you the mill if you combine the mills, Outlets and malls, domestic portfolio that we owned in 2019 and that we still own in 2022, We will get there on a run rate by the end of this year. Simple as that.

Speaker 1

We're not that far off, but we have delayed openings. And depending on where sales come in, it's even possible we make it this year. And that's the way to look at it and that's the only way to look at it really.

Speaker 8

I don't disagree. If I can The S and O pipeline, has that changed from the last quarter as well? You mentioned some of your space is opening later In 2023 and in 2024, obviously, that has the potential to impact your NOI Growth going forward by 5% to 7% depending on the rent that you signed, plus your fixed rent bumps. The math that we have suggests that 2% is it's the extreme low side of what's probably going to happen over the next 2 to 3 years.

Speaker 1

Yes. I mean, certainly, if you look at it over that period of time, we were called to We outperformed. And again, I just go back to last year, we try to be as thoughtful in doing this, But there are variabilities to it, overage rent being the biggest, But we also have some certain inflationary pressures that we as landlords and property owners have to deal with that I mentioned earlier. And again, you have downtime, but we I would hope That we would beat our number just like we did last year. And just like we have historically.

Operator

Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Speaker 9

Good afternoon. Thanks a lot for taking my question. In the past, you've talked about 80% of the NOI being generated by the top 50% of the properties. Does this remain true? And can you talk about the demand trends and pricing power that you have in the top half of the portfolio relative to the bottom half?

Speaker 1

Well, I don't do you anybody has that percentage? Yes. Michael, that's the whole truth. Our top 100 assets generate roughly 80% of our Yes. So it's more than 50 properties.

Speaker 1

Yes. It's more than 50 properties. So, I'd say demand across the board is good. Obviously, the higher end operating probably has more demand And but we're generally our leases still to this day, Our occupancy cost is low and our rent spreads across the board are generally positive.

Operator

Our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.

Speaker 10

Yes. Hi. Just a quick one. For your platform investment FFO forecast, are you expecting any significant non recurring costs like you had in the 2022 results?

Speaker 1

No. Got it.

Speaker 11

Okay. Thank you.

Speaker 1

That's a good question and the answer is no. We're not.

Operator

And our next question comes from the line of tandel St. Juste with Mizuho. Please proceed with your question.

Speaker 12

Hey, good evening, David and team. Hope you're well. Thanks.

Speaker 1

I was hoping, David, I was

Speaker 12

hoping maybe you could share some thoughts on deploying capital in the current macro. We noticed you didn't buy back any stock in the Q4. So I guess I'm curious what your level of interest in stock buybacks is here today? And second, I know you mentioned that there's no sizable acquisitions or dispositions in the guide, but I'm curious what your view of the transaction market from all is, At least today, clearly, things are still a bit stalled across the board, but there have been a few trades in California over the last couple of months. So curious what you think of those trades and if there are any pricing Thanks.

Speaker 1

Well, I think we're generally pleased that we're seeing some activity in our No sector, I would explain that there's others out there that are Real Estate Industries that are trying to grow externally, As an example, what was today that was announced, it's good to see we're not the only ones They like to make things happen externally. So that's Good. I think our strategy has been essentially confirmed by others and other players in our industry Where size and economies of scale see the benefits, so it's always good to We saw it in the warehousing world, and we saw it in the now we might see in the storage world. So it's great that we see that. From a stock buyback, I think our dividend is really where we're focused growing at.

Speaker 1

One thing I mentioned hopefully in my conference text that you heard was we paid out $39,000,000,000 in dividends, Staggering number when you put it in perspective. That does not include any Stock buyback, that's just pure dividends. I'd say that's obviously the focus, But if the stock comes under pressure, we still have the ability to deal with that. So that is in our arsenal. We got a lot of mixed use properties.

Speaker 1

I'd say generally relatively quiet on the acquisition front. We did create our partnership with Jamestown, which we're focused on this year and obviously the years Come to grow that relationship, but we've got a lot going on And the capital to continue to create external opportunities. And we've been we haven't batted 1,000, But we've certainly moved the needle profitably with our investments And create an unbelievable return on investment, both in the real estate. Now still one of the best deals ever done In Real Estate was our deal on premium outlets, which I'm happy to walk through the math not today, but Yes. Still one of the best multiple deals ever done in our industry and at that We will wildly criticize for it, but one of the best deals done in the public company space.

Speaker 12

Got it, got it. No, I appreciate that. But it sounds like at a high level without putting words in your mouth that the focus of your capital investing today is going to be more the re dev, less the stock buybacks, less the acquisitions. Question, just a follow-up maybe on the FFO guide itself. I appreciate some of the headwinds, the unknowns, the OpEx, the interest expense, etcetera.

Speaker 12

But I'm trying to get else might be limiting the FFO growth this year, which is basically flat year over year versus the 2%?

Speaker 1

Yes. It's really simple. It's interest rate. We're losing Roughly $0.30 to $0.35 per share just from either floating rate debt that's now higher or Our own assumptions of what our refinancing costs are going to be. The good news is we're refinancing all of our debt.

Speaker 1

The market's there, But the cost of debt is higher. So that's really, if you cut through it all, That's and when you look at kind of where the market was, very few analysts updated their numbers at all for Higher interest rates, but they I don't have to tell you they've bloomed over the last 12 months.

Speaker 12

Yes. No, I appreciate that. I wanted to get a bit of clarity though perhaps on bad debt. How are you thinking about that this year within the guide, FX headwinds, maybe at least?

Speaker 1

Yes. I think we got to open it up a little higher. We have a little higher bad debt expense budgeted this year than last year. Thank you.

Operator

Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Speaker 2

Hi. Thank you. Just hoping for a little color on expected CapEx spend just in general for maintenance and then the development Ben, that we should be budgeting and what kind of returns or NOI contributions we should be thinking about on the debt free debt stuff that would flow through into territory as we

Speaker 1

I was looking at our 8 ks because the development spend We'll add to that, but obviously when you start a real estate project, it's over a 2 year, Sometimes 3 year process, so all that's disclosed in the 8 ks. And the CapEx, including TA will probably be roughly with what it was 2022, if not a little bit less. Okay. Thank you.

Operator

Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.

Speaker 11

Hey, good evening, David.

Speaker 10

Regarding the large number of stores opening in late 'twenty three and early 'twenty four, what's that expected NOI contribution or GLA that you attributed to these leases that

Speaker 11

are signed but not yet been paid?

Speaker 1

At least $100,000,000

Speaker 10

On NOI or deals? I guess, that's why.

Speaker 1

Okay. Thank

Speaker 10

you. And then is there any contribution expectation from this Jamestown investment? And then if you could talk about like Clay Pier That's built into guidance as well. That'd be appreciated.

Speaker 1

That's all in Jamestown is Accretive, but it wasn't a big investment. So it's in our budget, but it's It's not really the relationship is material, but the financial impact is not material. So that's 1. Tclathea, we it is consistent with their guidance that they'll be Developing when they announce their earnings, this in the next couple of weeks. There is some FX headwinds still baked in there, Greg,

Speaker 10

All right. Thank you.

Speaker 1

Thank you.

Operator

Our next question comes from the line of Ki Bin Kim with Truist. Please proceed with your question.

Speaker 11

Thanks. Good afternoon. Hopefully, a quick one here. So when I look at your 2023 lease expirations, your portfolio still has about 10.5% expiring, which hasn't really budged in the past couple of quarters. I remember from the last call you said these things can take time, especially with larger national accounts.

Speaker 1

So I

Speaker 11

was just curious if you can share an update and how we should mentally think about a realistic set of outcomes here.

Speaker 1

Well, it's listen, we're negotiating for the benefit of Our shareholders, they're negotiating for the benefit of their shareholders. And a lot of these things, we have, Well, I'll say handshakes and it's a process of being paper. So you should feel good that There's no smoking gun. There's nothing there that's going to lead to a fallout. It's just the process.

Speaker 1

And renewals are going we're in fact ahead of our 23 renewals now Compared to where we were last year, but some of the 22s and in some cases because 22s took so long, we're doing 23s. So together and it's a process, But it's going well and relationships are progressing appropriately.

Speaker 11

Okay. And just one quick one. Where should we expect your portfolio occupancy to end up

Speaker 1

by end of this year? 23, slightly up, slightly up. I don't have the number, but Brian, we have it for you later. Okay. Last one, I guess, we're over 6, but we have one more question and we want Jeff, finish the Q and A.

Operator

And our final question comes from the line of Linda Stieff with Jefferies, please proceed with your question.

Speaker 13

Hi. Thanks a lot for taking my question. On the guidance, the range you provided based on comparable FFO per share, in the coming quarters when you have a better sense of mark to market gains or losses, will you also show guidance for estimated diluted per share for the You're like you did in prior quarters?

Speaker 1

Yes. Well, last you mean our mark to market equity investments? Yes. Yes. Sure.

Speaker 1

I mean, we outlined it. We separated. We'll do comparable and real numbers. So you'll see both. Hopefully, it will only be up.

Speaker 1

But last year, we did take a reported FFO, do you have the number? $61,000,000 What was that? $0.08 $0.08 So let me outline those For you, Amanda. So you'll see them both.

Speaker 13

Great. Thanks a lot.

Speaker 1

Thank you.

Operator

And we have reached the end of the question and answer session. I'll now turn the call back over to David Simon for closing remarks.

Speaker 1

Thank you. And again, I'm sure there are a lot more Deep health questions, please call Brian and Tom and they'll be happy to walk you through more details. Thank you.

Operator

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Simon Property Group Q4 2022
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