Simon Property Group, Inc. — 2024 Q1

Well, no one likes earnings volatility unless it's volatility in the right direction, okay? So Caitlin, thank you for the comments to start. But that's -- I don't like volatility either. Listen, on Express, we were approached by the IP owner. I think it's not overly complicated in the sense that they saw what we had done historically, both with ABG and SPARC and offered us to participate with no capital, but also add our expertise and our knowledge in what we've been -- what we've done in the past with SPARC. And because we have always valued Express as a retailer and as a client, we jumped at the opportunity. So we don't expect it -- we expect to be -- it's got to go through bankruptcy process, and that's out of our control. But if WHP does end up getting it, we'd be pleased to participate in the turnaround of Express.

This is Lizzy Doykan on for Jeff. I was curious if you could talk a little bit more about the key drivers of retailer sales as we started the year. And it seems like there's been some good outperformance from -- driven by especially your tourism-driven centers. So I'm just wondering how much that has been a factor into the first quarter of this year and how much upside there is remaining from tourism.

Sure. We feel very bullish on our portfolio in general. And then obviously, our tourist centers, especially in California and in the Northeast are starting to finally see the improvement that we have been seeing for quite some time in Florida. And Florida continues to be an unbelievably strong market as well. So we're finally seeing California, Northeast pick up. Obviously, the strong dollar vis-a-vis certain currency does have an effect, kind of an inhibitor effect. But even with that said, domestic tourism continues to excel.

Yes.

So that's also a very good sign.

Yes. Look, we don't update that, as you probably know. I think you know. We don't -- that's our goal for the year. We don't update it every quarter as some others might. But we still feel like that's -- even though we've got some -- unanticipated to some extent, I mean, we do create bogeys on our rental income stream on retailers that we do feel might come under pressure in the year. So we do have kind of adjustments in our budgeting process dealing with those. We still feel like our initial guidance on that is very achievable. So we don't update it every quarter, but if we didn't feel like we could achieve it, I think we would highlight that. But we don't see that even with some of the -- I mean, we might not overachieve, as we always want to, but I think we can still deliver the initial guidance.

Sure. I think we've seen rates more or less stabilized now. There was a volatility prior to that where it was hard to predict. Now, we're not anticipating a reduction in rates, but at least we feel like we're at a more or less a stable rate environment. That makes it easier to make investment decisions, so I would break it up into 2 buckets. The first bucket being our redevelopment effort, and most of that, frankly, is mixed use in our properties, and we feel very bullish on that.

Sure. Look, we are -- make no mistake about it, we are not immune to macro -- the macro environment. So we would have to deal with it, both from -- if it ultimately led to less consumer spending and more retail client stress. We're not immune to it. However, and this is a big -- the big underlying from my standpoint, I have always felt like we've done our best work when others are dealing with the macro environment.

Yes. That's -- it's interesting, Alex. It's a very good question. And I think, honestly, we really focus on -- to the extent we do put in fresh capital, we -- in addition to understanding what it means for our overall business, and the totality of our company, it's also absolutely driven by return on investment, just like building a new shopping center.

It's Nick Joseph here with Craig. David, I just wanted to ask on kind of the opportunity and -- to roll out additional luxury, either VIP suites or retailers, we saw what you did at Woodbury. And I'm just curious on the opportunity for the remainder of the portfolio and what kind of demand do you think that will drive from some of these higher income clientele that you're seeking.

Listen, I think we've got a great portfolio of real estate that is focused on the very high income consumer. And I think we need to step up our game in all the services that need to be provided to that consumer. And I think Woodbury, Sawgrass are just the beginning of an effort to really -- I can't think of the right word, but really entertain that consumer to make it really special. And it's all the services that they're accustomed to, it's the fine dining, it's the ease of access, it's right -- having the right retailer mix.

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

Yes. No, that's right. We've just assumed that we would hold the cash for the time being. And we have debt maturities coming due here in September and October. And so we could use the cash on hand to fund that. We also were carrying cash from our activities -- from our capital markets activities last year. So the combination of it will address our upcoming maturities.

Yes. The charges pretax were $33 million, so not -- most -- it's kind of funny -- because you know most charges were in the hundreds of millions of dollars, so -- yes, I think you have to put it in perspective. But with that said, it really dealt with personnel and inventory. So that were the 2 primary factors and more really on the inventory side because we had some clearance of inventory that in SPARC it was really focused on F21 and Penney just on basically clearing out some inventory.

Yes. Well, look, I think as part of the deal originally -- first of all, our relationship with Brookfield is excellent in our -- we both basically -- and ABG is an investor in there as well, but we very much see eye-to-eye on JCPenney and how it operates and how we should operate it. And I would say both of us, and now, my memory is a little bit cloudy, but when we did the restructuring, we did get -- both of us got the opportunity to reclaim certain space from JCPenney that we could redevelop it.

Yes. Let me answer that. I think the 2 tenants -- I mean, even if we didn't -- I think it's just color for you to know that generally, the portfolio was flat. We don't like to name tenants, so we don't focus on it. I'd also, I think, point out to you, the most important thing we look is total volume, and we were up quarter-over-quarter. What was the number again? 2.3%. That's really the number we look at. And again, remember, these are reported sales. We can get into this whole diatribe about some of the retailers credit their sales with Internet returns. So it's just information, okay? Do what you want with it, but it's just information.

I'll let Brian, you can -- I hope you can answer all these. I expect you to...

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

Tell him the 2.

Fair Oaks and Country Club are the 2 assets that when -- the partner is buying us out or bought us out. With respect to capital on the balance sheet, certainly, it's a capital allocation decision relative to stock buyback. But we -- with the amount of capital that we are generating, both free cash flow and what's on our balance sheet, it is still an appropriate use of capital throughout the balance of the year and would expect that we would have interest in buying back our stock at certain levels.

Yes. And I would just add to that, the ABG sale happened, I don't remember exactly, but near quarter end. And we were blacked out from that because of Q1 earnings. So I wouldn't read that the fact that it's sitting on the balance sheet to read too much into that.

There is no required special dividend. These were -- this interest was owned in our taxable REIT subsidiaries. So there will be a tax, actual payment due, not actually a special dividend.

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

We are not involved in that process. That's really management. So I have no point of view or no opinion on that at all. That whole process is part of -- we really won't get involved until we're approved as the stalking horse bidder. So that -- all that's going on today with the depth and everything else is all part of -- it's all the existing management team. We have no involvement in that whatsoever.

It's Hong on for Mike. I guess I was wondering, can you give us an idea of where -- of what kind of CAGRs you're seeing most of the demand from in your malls? Is it -- I'm just wondering if it's broad-based and/or how much of it is apparel versus the other categories?

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

Got it. If I could sneak 1 other question. And I guess the $745 square foot sales, is that portfolio weighted or NOI weighted?

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

$950 plus or minus, basically.

Okay. $950, thereabouts.

Well, again, they're equity accounted, so they're really not on our balance sheet just to make us clearer. So they're investments in them. Listen, they are -- we built a company where everything is core and nothing is core. So we saw ABG, we got an offer, we hit the bid. I would view that for any and all assets that we have, whether it's JCPenney, SPARC, XYZ mall. Call Uncle David and not -- most people don't hit my bid, but the only thing that's core is the company and its people and its balance sheet, but every other assets were sale at the right price, so nothing is critical long term.

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