Simon Property Group Q1 2023 Earnings Report

Simon Property Group EPS Results

• Actual EPS: N/A
• Consensus EPS: $2.80
• Beat/Miss: N/A
• One Year Ago EPS: $2.78

Simon Property Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.27 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Simon Property Group Announcement Details

• Quarter: Q1 2023
• Date: 5/2/2023
• Time: After Market Closes
• Conference Call Date: Tuesday, May 2, 2023
• Conference Call Time: 5:00PM ET

Simon Property Group (NYSE:SPG) (NYSE: SPG) is a publicly traded real estate investment trust (REIT) that owns, develops and manages retail real estate properties. Its core business activities include acquisition, development, leasing and property management of regional malls, outlet centers and mixed‑use retail destinations. The company operates retail brands that include high‑profile regional shopping centers and the Premium Outlets platform, and it provides services such as tenant leasing, marketing, property operations and capital projects to optimize asset performance.

Simon’s portfolio spans a broad mix of enclosed malls, open‑air centers, outlet properties and mixed‑use developments, and the company pursues redevelopment and repositioning to adapt properties to changing consumer and retail trends. The company has built its business through a combination of development, strategic acquisitions and joint ventures, and it operates properties across North America with a presence in international markets through outlet and partner arrangements. Its assets serve a wide range of national, regional and local retailers as well as entertainment and dining concepts aimed at driving foot traffic and shopper engagement.

Corporate strategy emphasizes active asset management, redevelopment of underperforming properties, and growth of outlet and mixed‑use formats that reflect evolving consumer preferences. The company is led by Chairman and Chief Executive Officer David Simon, and it works with institutional partners and capital markets to finance development and acquisitions. Simon Property Group’s operations center on maintaining high occupancy, enhancing the shopper experience and generating long‑term value through property-level improvements and portfolio optimization.

Simon Property Group Q1 2023 Earnings Call Transcript

Key Takeaways

• Simon reported Q1 funds from operations (FFO) of $1.03 billion, or $2.74 per share, driven by higher rental income in domestic (+$0.15) and international operations (+$0.02), partly offset by FX and interest rate headwinds.
• Domestic property NOI rose 4% year-over-year and portfolio NOI grew 3.9% at constant currency, while overall occupancy improved 110 bps to 94.4% (Mills 97.3%, TRG 93.3%).
• Leasing momentum remained strong with over 1,200 deals totaling 5.9 million sq ft signed in Q1 (25% new leases), 1,500 deals in the pipeline, and average base rent up 3.1% to $55.84 per sq ft.
• Management raised full-year 2023 FFO guidance to $11.80–11.95 per share (from $11.70–11.95) and declared a 9% higher Q2 dividend of $1.85 per share, underpinned by $9.3 billion of liquidity.
• The balance sheet was bolstered by a $1.3 billion dual‐tranche U.S. senior notes issuance at a 5.67% average coupon, a new $5 billion multi-currency revolver and continued A-rated mortgage refinancings.

Presentation

[Operator]

Greetings. Welcome to the Simon's 1st 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. If anyone should require operator assistance during the conference, please press Star and then zero on your telephone keypad. A reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tom Ward, the SVP of Investor Relations. Thank you. You may proceed, sir.

[Tom Ward, Senior Vice President of Investor Relations at Simon Property Group]

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 a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date.

[Tom Ward, Senior Vice President of Investor Relations at Simon Property Group]

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 1 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 1 question. I'm pleased to introduce David Simon.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you. Good afternoon. I'm pleased to report our first quarter results. We are off to a good start with results that exceeded our plan. First quarter FFO 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 US dollar of $0.02, higher interest rate expense of $0.05, lower lease settlement income of $0.06 compared to Q1 of 2022.

[David Simon, Chairman CEO and President at Simon Property Group]

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 costs 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.

[David Simon, Chairman CEO and President at Simon Property Group]

Overall, we continue to expect OPI to meet our 2023 guidance we provided at the beginning of the year, which will be a similar FFO contribution that was compared to 2022. 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 outlet 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.

[David Simon, Chairman CEO and President at Simon Property Group]

We signed more than 1,200 leases for more than 5.9 million sq ft 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 from 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 sq ft reached another record in the first quarter at $759 per sq ft for malls and premium outlets combined, an increase of 3.3%.

[David Simon, Chairman CEO and President at Simon Property Group]

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 then hotel rooms. Now turning to the balance sheet.

[David Simon, Chairman CEO and President at Simon Property Group]

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 multicurrency revolving credit facility with a maturity in 2028. Importantly, the pricing's unchanged from our prior facility. The traditional secured mortgage markets continue 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 thirtieth of this quarter.

[David Simon, Chairman CEO and President at Simon Property Group]

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-$11.95 per share to $11.80-$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. I'm pleased with our first quarter results. Tenant demand is excellent, and brick-and-mortar stores are where shoppers wanna be. Even with the economic uncertainty, we are running ahead of our internal plan. Excuse me. Here, I have some kind of flog in my throat, but we're ready for questions.

[Operator]

Thank you very much, sir. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star and then one on your telephone keypad. Please ensure to limit your question to just one question per analyst. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from Caitlin Burrows from Goldman Sachs. Please proceed with your question, Caitlin.

[Caitlin Burrows, VP and Equity Research Analyst at Goldman Sachs]

Hi. Good evening, everyone. Maybe, regarding upcoming lease maturities and what that means for potential cash flow changes going forward, the ABR for 2023 maturities is around $62 versus the portfolio overall at $56. Would you think it's fair to say that the rest of the 2023 maturities may face a headwind on renewal, the 2024 maturities, which are 12% of rents and have an ABR of $54, have significant opportunity? I'm guessing it's not that straightforward, wondering if you could discuss that rent maturity and mark-to-market outlook.

[David Simon, Chairman CEO and President at Simon Property Group]

Yeah. Thank you, Caitlin, for the question. One of the numbers I threw out there while I was coughing during my presentation was you know, 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 some of the numbers that you quoted. We are renewing above our overall above our expiring rents. Even with that said, we expect to continue to you know, have positive rental spreads even with the higher number for the balance of this year and certainly in 2024.

[David Simon, Chairman CEO and President at Simon Property Group]

The outlook on that front is very positive and unchanged, since, you know, our commentary certainly at the beginning of this year and fourth quarter of last year as well.

[Caitlin Burrows, VP and Equity Research Analyst at Goldman Sachs]

Okay, thanks.

[Operator]

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

[Steve Sakwa, Senior Managing Director and Senior Equity Research Analyst at Evercore ISI]

Yeah, thanks. Good evening, David.

[David Simon, Chairman CEO and President at Simon Property Group]

How are you?

[Steve Sakwa, Senior Managing Director and Senior Equity Research Analyst at Evercore ISI]

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, you know, anything by product type, whether it's, you know, The Mills, the outlets, the traditional malls? You know, just looking for a little color given what we're going through and kinda what your tenants are telling you. Just kinda curious where the strongest demand is and maybe to the extent that there are any weak spots, you know, what would you call out?

[David Simon, Chairman CEO and President at Simon Property Group]

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. Let's talk about the luxury side. You know, clearly, they're running up against tough comps compared to Q1 of last year. Those brands and those companies think long term. I mean, the best example is if, you know, we were at the opening of the Tiffany store in, on 57th Street. You know, you have to take a long-term view when you open stores like that. And all of those brands, whether LVMH Group, Kering, you know, Richemont, et cetera, they're looking at 2023, 2024, 2025, we're making commitments. Nothing there is really abated.

[David Simon, Chairman CEO and President at Simon Property Group]

All systems go on that front, even though they're running up against tough comps compared to Q1. You look at the restaurant category, very strong demand, lots of new deals across, you know, lots of price points from, you know, P.F. Chang's, Cheesecake Factory to, you know, some of the chef-driven brands. All systems go there. You've got the box demand, lots of new business with Dick's, Lifetime Fitness, you know, the best of the best, you know, SCHEELS. Department store demand, Von Maur is happening. You look at athleisure, Vuori, Alo, lululemon, you know, Brooks Brothers, you know, all of that pretty much across the board, you know, we're seeing new stores.

[David Simon, Chairman CEO and President at Simon Property Group]

I said this at the end of last year, early this year, even with even though comps are gonna 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, you know, come back. Theater business is positive. You know, we feel, you know, We're feeling very good. You know, obviously, we're cautious. We don't expect sales like they were over 2021 and 2022, and we planned accordingly. Demand, we check every day, and there's, you know, certainly a couple here or there that have slowed down, but nothing of nothing really noteworthy. You know, VF, North Face, Timberland, Cotton On, they're all, you know, they're all, they're all growing, and it's all pretty healthy.

[Steve Sakwa, Senior Managing Director and Senior Equity Research Analyst at Evercore ISI]

Great. Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Ronald Kamdem, Managing Director Head of US REITs and CRE Research at Morgan Stanley]

Great. Thanks. Hey, I remember last quarter, we talked about domestic property NOI growth of at least 2%. You know, you're thinking about looking at 1%-2% already at 4%. Just maybe, can you give us an update how you're thinking about that number for the rest of the year? You know, looking at the guidance raise, how much is that property, core property NOI versus maybe other factors? Thanks.

[David Simon, Chairman CEO and President at Simon Property Group]

Sure. Yeah, we're gonna beat 2%. You know, I would hope we would do, you know, at least 3% plus. I mean, there is some, you know. It's very interesting. The first 6 months from a retail point of view, comps will be tough. We think the second half for the retailers will be, you know, will be more positive. Lots of economic uncertainty out there, you know, with the big macro things. Assuming sales come in the way we initially budgeted, we should be, you know, hopefully at least 3%. If we have an uptick in sales, we'll do better.

[Ronald Kamdem, Managing Director Head of US REITs and CRE Research at Morgan Stanley]

Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler]

Thanks, good evening, David.

[David Simon, Chairman CEO and President at Simon Property Group]

How are you?

[Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler]

I'm doing well. 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. 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? Whether that's domestically or abroad, you know, sort of curious.

[David Simon, Chairman CEO and President at Simon Property Group]

I don't see. Let me do it in pieces with, you know, no particular order. I still do feel strongly that the best use of our capital is making our existing portfolio better and better. I think that's, you know, we have spent, you know, $8+ billion over the last several years upgrading the portfolio and doing new development. We continue to see that as our best use. I don't see. As I mentioned in the call, I mean, we have a residential pipeline that looks really attractive and hotels that are generating really good accretive values, you know, of around 2,000 units. That's not gonna happen overnight, but that's gonna happen over, you know, the next few years. That to us is a real opportunity.

[David Simon, Chairman CEO and President at Simon Property Group]

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 in accretive new development. You know, we're, we're looking at everything domestically here, and nothing really has wet, I think I could say this, whet our whistle here to make us... I can say that, right?

[Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler]

Okay.

[David Simon, Chairman CEO and President at Simon Property Group]

Nothing here that would-

[Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler]

You said it.

[David Simon, Chairman CEO and President at Simon Property Group]

Yeah, I said it. True. Good point. Nothing here that would really, like, we're not jumping up and down to do external, you know, an external transaction. It's mostly the same stuff that we've been doing, you know, and, you know, and just keep plugging away on that. , I Lookdo think we have to respect the capital markets. You know, the capital markets are telling all companies to be more prudent, to do more accretive investments, we are listening very closely to that.

[Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler]

Okay. Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Vince Tibone, Managing Director at Green Street]

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, you know, how quickly you could start these projects, how much spend this could potentially represent, and if, you know, this is something that you're gonna maybe do through joint ventures or would be wholly owned on the balance sheet. Kind of any color on some of these points would be helpful.

[David Simon, Chairman CEO and President at Simon Property Group]

Sure. All right. I think we will do selected JVs on certain of the residential development. It also may be that we could potentially bring in third-party equity too. That would, you know, we'll look at each deal individually, but that's certainly a possibility. I think, Vince, essentially, we're looking at, you know, to reach all those 2,000 units, it's really probably a five-year build process. We expect to start several this year, we're, you know, frankly being a little bit cautious. We're, you know, we're still permitting some things in California, and, you know, the Northwest.

[David Simon, Chairman CEO and President at Simon Property Group]

We don't, you know, we're gonna just see how the world is, but we don't have to make a decision yet. I would think at the end of the day, you know, I'd rather Brian give you a more scientific number because a lot of these are part of redevelopments too. To really isolate the hotel, apartment, or rental stuff, I'd wanna give you a number, but I. My instinct would be probably about a billion and a half dollars. I think Brian can give you a more detailed number, but somewhere in that range. These go from Austin, Texas to Orange County, California to Seattle, some hotels in Florida, some residential in Florida, multifamily.

[David Simon, Chairman CEO and President at Simon Property Group]

it's kinda where you'd expect it to be, where supply and demand is in our favor. but, you know, we're considering building a hotel in Cape Cod, you know, because we think there's a good supply-demand, imbalance there. it really is, you know, across. In every... I'd say generally, as we get back real estate through our redevelopment efforts, you know, the big focus is on where we can, you know, where we can, you know, add some, you know, mixed uses. 'Cause we do think, like what we did in Buckhead is having, you know, a tremendous impact on the overall value of that real estate.

[David Simon, Chairman CEO and President at Simon Property Group]

Not only does it, you know, is it accretive from a value point of view, just on the, the cost to, you know, the return on the build versus, you know, what the value of that, of that is after it's built, but also, you know, the residual benefits that we see from the mall.

[Vince Tibone, Managing Director at Green Street]

Got another. That's all super helpful. You know, 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, you know, moving forward there in the near term?

[David Simon, Chairman CEO and President at Simon Property Group]

That's a complicated one. That's a complicated one, but every day, we make progress. It's terrific real estate, very complicated transaction, but we continue to make progress. No final decision has been made to do it, but I expect one to be made over the next few months.

[Vince Tibone, Managing Director at Green Street]

Great. Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Nick Joseph, Head of US Real Estate and Lodging Research Team at Citi]

Thanks. It's actually, Nick Joseph 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 you could give some more color on both the rationale behind it in terms of the amount and the structure of it ahead of the vote later this week.

[David Simon, Chairman CEO and President at Simon Property Group]

Look, I think, you know, this was, you know, 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 a supplemental letter to our shareholders. You know, I think, you know, if you look at the company in totality, which is important, I mean, we can always pick a moment in time to say, you know, why this, why that, but if you look at the history of the company, you look at 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.

[David Simon, Chairman CEO and President at Simon Property Group]

Anybody can pick out, you know, one particular number they don't like, but if you look at it in totality, you know, we are absolutely proud of, you know, how we run this business. If you wanna get more detail, I encourage you to talk to head of our comp committee, our lead independent director. Any shareholder can do that. I would encourage everyone to look at the totality of our history and then come to whatever conclusion they think. We're very happy to, you know, to talk to anybody, you know, that would like to go through it from a shareholder point of view.

[Nick Joseph, Head of US Real Estate and Lodging Research Team at Citi]

Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Greg McGinniss, Director at Scotiabank]

Hey, good evening, David. I just wanna 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? You know, how much of that, I guess, is incremental to in-place rents, or is all of it?

[David Simon, Chairman CEO and President at Simon Property Group]

Yeah.

[Greg McGinniss, Director at Scotiabank]

What's the timeframe that you expect to be contributing?

[David Simon, Chairman CEO and President at Simon Property Group]

All terrific questions. We highlighted that just to give you a sense of the scope of the business that's going on here. That's a huge number. That's just one lease, one level of activity in the year, and it's bigger than some companies that exist today. Let me try to unpack it. It does include renewals. It's just SPG. It's just domestic. If you looked at the renewals in the new business, there's a really good uptick from kind of the in-place in-income on that, and that will come in, not really this year, but over 2024 and 2025, as those stores get open.

[David Simon, Chairman CEO and President at Simon Property Group]

You know, I think it just adds a sense of our future growth that we see in front of us from our existing portfolio. I'm not in a position to break it out between renewals and new incremental business, but you'll see that flow through the NOI, you know, in the upcoming quarters.

[Greg McGinniss, Director at Scotiabank]

Okay. It is both, though, because you mentioned $100 million of new income last quarter, of new NOI.

[David Simon, Chairman CEO and President at Simon Property Group]

Correct.

[Greg McGinniss, Director at Scotiabank]

Okay.

[David Simon, Chairman CEO and President at Simon Property Group]

Yeah. It includes both. Correct.

[Greg McGinniss, Director at Scotiabank]

Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Derek Johnston, Research Analyst at Deutsche Bank]

Hi, everyone. Good afternoon. You know, occupancy is now at 94.4%, and, you know, that's just 70 basis points below pre-pandemic levels. Do you expect to surpass 4Q19's 95.1% occupancy this year? Given the leasing demand we've discussed, you know, how is the team weighing occupancy versus rates now that the gap is so narrow?

[David Simon, Chairman CEO and President at Simon Property Group]

Well, let me take that part first. I do think, you know, the good news is that when we're, you know. Again, every lease is different, every relationship's different, you know, rollovers, you know. You know, some rollovers go down. I would say generally speaking, we are finally seeing renewals that are overall above the expiring rents. So that. Part of that is just supply-demand is in our favor, and we are getting, you know, because one is, I think from the retailer's point of view, there's 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 gonna, you know, do the right thing to maintain and reinvest in these properties, and we have the capability of doing so.

[David Simon, Chairman CEO and President at Simon Property Group]

Generally, it's more demand that we're seeing. You know, the retailers having survived COVID, are in better shape and wanna grow their business. You know, that is all happening. Getting to your first point, will we beat it this year? It'll be close. You know, I can't guarantee it, but I am hopeful that we will beat that number, you know, certainly within the next 12 months, you know, assuming we can continue to maintain reasonably decent economic conditions.

[Derek Johnston, Research Analyst at Deutsche Bank]

All right. Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Floris van Dijkum, Managing Director and Senior Research Analyst at Compass Point Research & Trading]

Thanks. Good evening, guys. David, maybe if you can give us a little bit more of an update. I know in the past you've talked about your signed not open pipeline being around 200 basis points. Your leased occupancy just increased by 110 basis points. Is that S&O pipeline relatively similar? Then maybe, I mean, 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, you know, 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, Chairman CEO and President at Simon Property Group]

I think that's a fair statement. I would say that the pipeline is similar to what it's been.

[Floris van Dijkum, Managing Director and Senior Research Analyst at Compass Point Research & Trading]

Yeah.

[David Simon, Chairman CEO and President at Simon Property Group]

You know, right. Brian?

[Brian McDade, Executive Vice President and Chief Financial Officer at Simon Property Group]

Yeah. Floris, we're still hanging right around 200 basis points.

[David Simon, Chairman CEO and President at Simon Property Group]

Yeah

[Brian McDade, Executive Vice President and Chief Financial Officer at Simon Property Group]

... at this point in the year.

[David Simon, Chairman CEO and President at Simon Property Group]

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

[Floris van Dijkum, Managing Director and Senior Research Analyst at Compass Point Research & Trading]

If I can maybe follow up, David, on Jamestown, and you mentioned external capital. How is the Jamestown acquisition bedding in? Is that potentially a source of, you know, of external capital that you can bring into some of that, the apartment or hotel investments? 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, Chairman CEO and President at Simon Property Group]

Yeah. Look, I. To separate, you know, just to be clear. We bought into the asset management business, and we partnered with Jamestown for a couple of, you know, several reasons, but a couple to highlight here. One is they're, you know, really good asset managers. Two is they have a development capability that's very interesting to us, and they have excellent institutional relationships. We think with our partnership, we can grow that business. We did not, other than there is a, you know, there is a big future development, master plan development that they're working on in Charleston where we did partner with them directly.

[David Simon, Chairman CEO and President at Simon Property Group]

We did not buy any of their existing real estate that's owned by, you know, the various funds, whether it's the German funds or the, you know, or the Premier fund. Jamestown is in the process of raising their, what, 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. I just think we're early days there, but I think the thesis that we had going in continues to, you know, to be very, very valid. This is a long-term relationship that I think will grow.

[David Simon, Chairman CEO and President at Simon Property Group]

You know, 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, you know, build a, you know, a big community in Charleston, you know, North Charleston. 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. I think, you know, again, just as we look at the landscape for real estate owners and managers, we think, you know, when we look at a Blackstone, when we look at a Brookfield, you know, obviously, they own, they asset manage.

[David Simon, Chairman CEO and President at Simon Property Group]

For us to have some scale or some role in that business, I think, ultimately, will inure to the benefit of Simon Property Group. That's what we're after.

[Vince Tibone, Managing Director at Green Street]

Thanks, David.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Craig Schmidt, Managing Director and Senior Research Analyst at Bank of America]

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

[David Simon, Chairman CEO and President at Simon Property Group]

I think it will be, you know, Craig, you know about retailers, so just to reinforce it, the retail part of OPI. Remember, the vast majority of the OPI value is in our ABG stock. We still have a very profitable business with both JCPenney and SPARC, and then other investments that are in that, including RGG, and so on. Just important to put it in context. The retail part, the pure retailer part, JCPenney and SPARC, is seasonal. Last quarter, Q1 of 2022 was just stimulus, whatever, was a really tough comparison for the retailer part of OPI. With that said, we expect it to be profitable in Q2 and Q3.

[David Simon, Chairman CEO and President at Simon Property Group]

you know, the vast majority of it will be Q4, like all the other retailers. When you see retailers, you know, report this quarter that are public, I think generally you'll probably all have tough comps against Q1 of last year. Yet 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, you know, for better or worse. In this case, this quarter, it's worse. Fourth quarter will be much better.

[David Simon, Chairman CEO and President at Simon Property Group]

Does create a little volatility, but, you know, the, it'll, you'll see it map out, part of that OPI map out, just like other retailers, where the loss will be in Q1, profitability in Q2 and 3, and then, you know, 70%, 65%, 70% in Q4.

[Craig Schmidt, Managing Director and Senior Research Analyst at Bank of America]

Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Juan Sanabria, Managing Director and Senior U.S. Real Estate Analyst at BMO Capital Markets]

Hi, good afternoon.

[David Simon, Chairman CEO and President at Simon Property Group]

Good afternoon.

[Juan Sanabria, Managing Director and Senior U.S. Real Estate Analyst at BMO Capital Markets]

Just hoping to get a little color on the month-to-month leases. They've ticked up from about 4.5%-7.5% sequentially in the first quarter, while you did a fantastic job chopping wood and reducing the rest of the 2023 expirations. Just curious on why the increase in the month-to-month leases and what's going on behind that?

[David Simon, Chairman CEO and President at Simon Property Group]

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, you know, we're negotiating, the retailers are negotiating. You know, the stores are open and operating. But, you know, it's just a typical drawn out process that, you know, is, so to speak, the art of the negotiation. A lot of that's already handshake committed to that we're just going through and processing now.

[Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities]

Yeah. If you look historically, Juan, it's normal seasonality of that line item at this point in time in the year.

[Juan Sanabria, Managing Director and Senior U.S. Real Estate Analyst at BMO Capital Markets]

Great. That was my follow-up. Thank you.

[Operator]

Thank you. The next question comes from Mike Mueller from JPMorgan. Please proceed with your question, Mike.

[Mike Mueller, Senior Equity Research Analyst at JPMorgan]

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, Chairman CEO and President at Simon Property Group]

Not really. Not at all.

[Mike Mueller, Senior Equity Research Analyst at JPMorgan]

Okay. That was it. Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

Hey, good evening. Dave, I think earlier you mentioned that new leases were 25% of deal volume in the first quarter. I guess I'm curious if that's why CapEx ticked up, it was up 8% in the quarter, and if this is also a new level of new versus renewal leasing that you should expect near term. Thanks.

[David Simon, Chairman CEO and President at Simon Property Group]

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

[Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities]

Kendall, can you repeat your question, please? You kind of broke up a bit.

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

Sure thing. Sorry about that. My question was on, I think you mentioned earlier in the call that new leases were 25% of the deal volume in the first quarter. 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, Chairman CEO and President at Simon Property Group]

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. I'm not sure, you know, the CapEx line or you're looking at the TA line. 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. I still had a hard time on the last part. Did anybody hear it? No. We didn't hear it. Unfortunately, we didn't hear it, but if you wanna call back with, you know, we're happy to answer that.

[Operator]

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

[Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities]

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

[David Simon, Chairman CEO and President at Simon Property Group]

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

[Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities]

Yeah.

[David Simon, Chairman CEO and President at Simon Property Group]

Generally.

[Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities]

Yep.

[David Simon, Chairman CEO and President at Simon Property Group]

The bottom line is it is really gonna result in overage rent that we've probably flatlined more or less on those properties. You know, that will manifest itself once we reach the breakpoint later in the year. You know, we're starting to see, you know, I mean, like Vegas, you know, where are our tourist properties? Florida, which has been pretty strong, we're seeing more and more international tourism there. Woodbury here in the New York area, I say here, I'm in Indianapolis, you know, in the New York area is really starting to see a lot more international tourism. California's been kind of the weak link, we're starting to see more and more sales there. Vegas is just going crazy.

[David Simon, Chairman CEO and President at Simon Property Group]

Vegas, you know, and we have really important exposure in Vegas between Forum, Crystals, 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's just, it's a great place to have, you know, a lot of retail real estate, and we're seeing real benefits in that. This will manifest itself in the fourth quarter as we're, you know, as we're seeing that, but, you know, as we reach the breakpoints. We're finally seeing the international tourists come back to the States. A little weaker dollar helps and obviously all the...

[David Simon, Chairman CEO and President at Simon Property Group]

I think finally you don't have a vaccine card or whatever is required to come here. All of that's kinda yesterday's news as of today or yesterday. We're, you know, I think we're finally starting to see that come back like it was pre-pandemic.

[Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities]

Okay. A quick question for Brian. You guys have a pretty healthy cash balance of over $1 billion, yet you still carry a balance on the revolver. I'm sure there's a pretty logical, simple answer to this, just curious.

[Brian McDade, Executive Vice President and Chief Financial Officer at Simon Property Group]

Yeah, that's exactly right. The outstandings on our revolver are denominated in EUR, and they serve as a net investment hedge against our asset base in Europe. We do have 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. We're carrying cash, and we'll pay off the June maturities at par at maturity.

[Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities]

Okay. Thank you.

[Brian McDade, Executive Vice President and Chief Financial Officer at Simon Property Group]

Sure.

[Operator]

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

[Michael Goldsmith, US REITs Analyst at UBS]

Good afternoon. Thanks a lot for taking my question. David, your base minimum rent growth is accelerating. You have a nice S&O 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, Chairman CEO and President at Simon Property Group]

Well, look, I, you know, I mean, I see it continuing. We see good demand. You know, we are, you know, we are, you know, we are tied to the general economic condition. You know, supply and demand is in our favor. You know, I think our spot in our industry is well established. We have the confidence with our retail partners. We know what we wanna do with our properties. We're not, you know, we don't bat 1,000. We, you know, we make mistakes all the time, but, you know, we know where we wanna position them.

[David Simon, Chairman CEO and President at Simon Property Group]

you know, so I hate using kind of this, but you know, it's really gonna be the external environment that could slow this down, meaning, you know, what happens, you know, do we, do we do a recession or that. I honestly think some of these markets are, you know, when people ask me that, I actually think if we do go into a recession, it'll be, you know, quote, this 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 Floridas, Texas, Nevadas of the world, you know, Georgias. I just don't see them slowing. I don't see them going into a recession.

[David Simon, Chairman CEO and President at Simon Property Group]

If there is one, you know, it, you know, we've always heard, well, you know, it's gonna be a regional one. This one might be one, you know, who am I to... I really don't know. I think that's what slows us down. Obviously, we do have some headwinds with higher interest rates. You know, we do have, you know, a debt maturity at low rates that'll roll over, will cost us some growth. You know, we just have to kind of go through that and deal with it.

[Michael Goldsmith, US REITs Analyst at UBS]

Thank you very much.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Operator]

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

[Linda Tsai, Senior Vice President and Senior Equity Research Analys at Jefferies]

Hi. How do you think about the longer term growth profile of the OPI business versus growth in overall portfolio NOI? You know, do you think the OPI business requires more consistent investment before it generates more stable returns?

[David Simon, Chairman CEO and President at Simon Property Group]

Well, I think you have to look at it in the individual investments. You know, like, for instance, Authentic Brands Group is a growth machine. They're buying brands, you know, left and right. You know, they're buying Billabong, they're buying Vince. They've got a huge pipeline, so I really see that company growing. SPARC and JCPenney are, you know, SPARC is opening new stores, getting better at e-commerce, getting better operating. I'm sure over, you know, they added Reebok to its portfolio last year. That still hasn't been fully integrated, so, you know, I expect EBITDA growth to accelerate in the latter half of 2023 and 2024. You know, RGG, which includes Rue La La, Gilt, and importantly, Shop Premium Outlets. Remember we contributed that to that joint venture.

[David Simon, Chairman CEO and President at Simon Property Group]

Shop Premium Outlets is on fire. We're growing our GMV by leaps and bounds. I really think, you know, this was an idea we had years ago. We kinda got it off the ground. It, you know, maybe not quite as good as Wilbur Wright, but we got it off the ground. We merged it into RGG, and it's really rocking and rolling. We've got, you know, we're signing up good retailers all the time. That's got a great story to it. We have some smaller investments in that. I think I see a real growth pattern in all of those. JCPenney is reinvesting. I think JCPenney 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.

[David Simon, Chairman CEO and President at Simon Property Group]

You know, the retailer side of OPI has a little more exposure to the economy because, you know, retail just does. I think they all in their own right, have their own growth story. You know what? You know, we're economic animals to the extent that we think we get fair value. You know, we've got lots of opportunities to invest in our company or other transactions that will add value. You know, we look at these very clinically. You know, and I just remember we've created a lot of value here with very little capital. You know, what's amazing, it's in our earnings now and, you know, which is a good sign, because it means it's earning money.

[David Simon, Chairman CEO and President at Simon Property Group]

Given the small investment it's been, you know, if you just wanna look on return on, you know, return on earnings or return on investment, it's been outstanding. Very proud of it, very profitable. Not our core focus yet. You know, I'll use the executive team here to leverage our capabilities, intellectual firepower, et cetera, to, you know, to make those companies better, and I think we've done a pretty darn good job, and we've had good partners across the board. We've done it in a very prudent way. It's been very beneficial for us. I expect growth to continue, you know, have more ups and downs. Won't be a straight line, but I expect more growth from that category.

[David Simon, Chairman CEO and President at Simon Property Group]

Same time, you know, 10 years from now, 5 years from now, we don't have to own any of these companies.

[Linda Tsai, Senior Vice President and Senior Equity Research Analys at Jefferies]

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

[David Simon, Chairman CEO and President at Simon Property Group]

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

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

Yeah, about three.

[David Simon, Chairman CEO and President at Simon Property Group]

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

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

Yeah.

[Linda Tsai, Senior Vice President and Senior Equity Research Analys at Jefferies]

Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

Sure.

[Operator]

Thank you. The next question, the final question, comes from Haendel St. Juste from Mizuho. Please proceed with your question.

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

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. The second part of my earlier question was, if you're expecting new lease volume, to be about 25% of the overall leasing volume as they were in the first quarter over the near term.

[David Simon, Chairman CEO and President at Simon Property Group]

Yeah, I think that's a reasonable number, yes.

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

25%.

[David Simon, Chairman CEO and President at Simon Property Group]

In that range.

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

Okay, sure. Okay. The second question I had was on foot traffic. We saw some recent Placer.ai foot traffic data for March indicating that year-over-year foot traffic at enclosed retail malls was 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 if that's coming up in lease negotiations in the current environment. Thanks.

[David Simon, Chairman CEO and President at Simon Property Group]

Well, yeah, that's I'm glad you asked that because I have, you know, we keep track of that ourselves. Just to give you March-over-March, 2023 over March of 2022, 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're actually much higher month-over-month. We, for our portfolio, we're above traffic, is above where it was this time last year-to-date, month-to-month.

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

Okay. Thank you.

[David Simon, Chairman CEO and President at Simon Property Group]

Thank you.

[Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities]

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, Chairman CEO and President at Simon Property Group]

Okay, thank you, and 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.

Participants

Executives

• Brian McDade, Executive Vice President and Chief Financial Officer
• David Simon, Chairman CEO and President
• Tom Ward, Senior Vice President of Investor Relations

Analysts

• Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler
• Caitlin Burrows, VP and Equity Research Analyst at Goldman Sachs
• Craig Schmidt, Managing Director and Senior Research Analyst at Bank of America
• Derek Johnston, Research Analyst at Deutsche Bank
• Floris van Dijkum, Managing Director and Senior Research Analyst at Compass Point Research & Trading
• Greg McGinniss, Director at Scotiabank
• Haendel St. Juste, Managing Director and Senior Equity Research Analyst at Mizuho Securities
• Juan Sanabria, Managing Director and Senior U.S. Real Estate Analyst at BMO Capital Markets
• Ki Bin Kim, Managing Director of US REIT Equity Research at Truist Securities
• Linda Tsai, Senior Vice President and Senior Equity Research Analys at Jefferies
• Michael Goldsmith, US REITs Analyst at UBS
• Mike Mueller, Senior Equity Research Analyst at JPMorgan
• Nick Joseph, Head of US Real Estate and Lodging Research Team at Citi
• Ronald Kamdem, Managing Director Head of US REITs and CRE Research at Morgan Stanley
• Steve Sakwa, Senior Managing Director and Senior Equity Research Analyst at Evercore ISI
• Vince Tibone, Managing Director at Green Street