Simon Property Group Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2024

There are 13 speakers on the call.

Operator

Greetings. Welcome to Simon Property Group Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to Tom Ward, Senior Vice President of Investor Relations. Thank you. You may begin.

Speaker 1

Thank you, Sherry, and thank you all for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer and President and Brian McDade, Chief Financial 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 related to our stores and statements. Please note that this call includes information that may be accurate only as of today's date.

Speaker 1

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 call this call this evening will be limited to 1 hour.

Speaker 2

Good evening, everyone. I'm pleased with our financial and operational performance in the second quarter. We are seeing increased leasing volumes, occupancy gains, shopper traffic and retail sales volumes resulted in the company's highest level of real estate NOI for the 2nd quarter in our company's history. Demand for our space from a broad spectrum of tenants is strong and steady. Our company is focused on creating value through unique and disciplined investment activities that will continue to deliver long term growth in cash flow, funds from operations and dividends, as you've seen by our recent increase in our dividend per share, and importantly make our properties better for the communities in which they operate.

Speaker 2

I'm now going to turn the call over to Brian, who will cover our Q2 results and the full year guidance in more detail. Thank you, David. 2nd quarter funds from operations were $1,090,000,000 or $2.90 per share compared to $1,800,000,000 or $2.88 per share last year. FFO from our real estate business was $2.93 per share in the Q2 compared to $2.81 in the prior year, a 4.3% growth. Domestic and international operations had a very good quarter and contributed $0.12 of growth.

Speaker 2

As a reminder, the prior year included a non cash gain of $0.07 from investment activity related to ABG. Domestic NOI increased 5.2% year over year for the quarter. Continued leasing momentum, resilient consumer spending and operational excellence delivered results exceeding our plan for the quarter. Portfolio NOI, which includes our international properties at constant currency, grew 4.8% for the quarter. Malls and outlet occupancy at the end of the second quarter was 95.6%, an increase of 90 basis points compared to the prior year.

Speaker 2

The mills occupancy was 98.2%. Average base minimum rent for malls and outlets increased 3% year over year and the mills increased 3.9%. As David mentioned, leasing momentum continued across the portfolio. We signed more than 1400 leases for approximately 4,800,000 square feet in the quarter. Approximately 30% of our leasing activity in the 2nd quarter was new deal volume.

Speaker 2

Our traffic in the 2nd quarter was up 5% compared to last year. And importantly, total sales volumes increased approximately 2% year over year. Reported retailer sales per square foot the Q2 was $7.41 for the mall and premium outlets combined. We hosted our 3rd annual National Outlets Shopping Day in June and it was very successful for shoppers and participating retailers. More than 3,000,000 shoppers visit our premium outlets and mill centers over the shopping weekend.

Speaker 2

Feedback from shoppers and retailers following the event has been great. Since launching this unique event 3 years ago, participating retailer and shopping momentum has built each year with more than 475 retailers this year, and we look forward to an even bigger event next year. Our occupancy cost at the end of the second quarter was 12.7%. Turning to new development and redevelopment. We will open our Tulsa Premium Outlets on August 15 at 100% leased and we will also open a significant expansion Busan Premium Outlets in South Korea this fall.

Speaker 2

We also started construction in the quarter on our first phase of a new luxury residential development at Northgate Station. This project will include 234 units and adds other elements that further transforms Northgate into the ultimate live, work, skate, stay and shop destination. At the end of the quarter, new development and redevelopment projects were underway across all platforms in the U. S. And internationally with our share of net cost of $1,100,000,000 and a blended yield of 8%.

Speaker 2

Now to the balance sheet. We completed the refinancing of 10 property mortgages during the first half of the year for a total of approximately $1,100,000,000 at an average rate of 6.36 percent. We ended the quarter with approximately $11,200,000,000 of liquidity. Turning to the dividend, today we announced our dividend of $2.05 per share for the 3rd quarter, a year over year increase of 7.9%. The dividend is payable on September 30.

Speaker 2

And now finally for guidance. We are increasing our full year 2024 guidance range to $12.80 to $12.90 per share compared to $12.51 last year. This is an increase of $0.05 at the bottom end of the range and $0.02 at the midpoint and reflects overcoming approximately $0.15 per share from certain retailer restructurings, loan release settlement and land sales income this year. With that, that concludes our prepared remarks. Thank you.

Speaker 2

And David and I are now available for your questions.

Operator

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

Speaker 3

Great. Good afternoon and congratulations on the quarter. Thank

Speaker 2

you, Jeff.

Speaker 3

Yes. My first question, I guess my only question at this point, I'll circle back in. I guess let's focus on the consumer given you service to the consumer across various formats from the malls to pre moutlets to mills, what is your latest thoughts on the consumer today? Clearly, the market is panicking that we may see a consumer led recession. And maybe if you could tie it to what you're seeing from retailers and how they're acting today?

Speaker 3

Thank you.

Speaker 2

Sure, Jeff. This is David. I'll take that. So look, I think we've been pretty consistent for well over a year that the lower income consumer has been under pressure for quite some time, primarily because of inflation that's affected. So that continues to be the case.

Speaker 2

They are very focused on managing their bills and discretionary expenditures have been obviously not where we'd like to see them. So we're optimistic that we're going to cycle out of that for the lower end consumer given the inflation picture that we see now, which is relatively benign. It's way too early yet. We haven't seen a slowdown in the higher end consumer. Obviously, the market is in an interesting point.

Speaker 2

We have not seen the wealth impact at all impact the higher end consumer. So we're still pretty sanguine about it. I think, as you know, we kind of budgeted at the beginning of the year flat sales. We're a little bit above that. So we've got a little bit of cushion, but the higher end or the better end consumer, I think is in a good spot.

Speaker 2

Their liquidity is in a decent spot. So we don't expect anything dramatic. But obviously, they're going to take their cue from what's going to happen in the overall market and what the employment picture looks like. So in summary, I think we're going to cycle more positive in the lower end consumer. And I think the higher end consumer steady as she goes currently.

Speaker 2

Jeff, you can always ask another question, but Tom Ward has put a pretty tough restriction on people. No, thank you.

Speaker 3

That's I'll be respectful. Thank you. Thanks,

Operator

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

Speaker 3

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

Speaker 2

Yes, I don't have color on July. We don't really get those numbers until August 20, which is my birthday by the way, but usually 20 days after the month. So no early returns on that. So we had a deal committee meeting, Brian, a week ago. And what I am told, okay, I don't participate in these because I would probably be disruptive.

Speaker 2

But what I am told, it was the best new deal committee we've had ever. So I think what we're seeing is demand and what I said early in my opening remarks, demand is strong and steady, not abating. It's really unabated. Obviously, retailers and solar, we were all sensitive to economic conditions. So as those develop, we have to be sensitive to them.

Speaker 2

But as we currently speak, we had a great deal committee and the team is working also on there. So that's kind of the news from the front.

Speaker 3

Thank you. Sure.

Operator

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

Speaker 4

Hi, everyone. Maybe just following up on that retailer demand side. So portfolio occupancy has increased nicely over the last year. It sounds like leasing remains strong. You just mentioned the best new deal committee.

Speaker 4

So that would support further occupancy increases. I'm just wondering versus the current 95.6 percent, how much further upside do you think you have? Or is there some reason to expect this rate of increase can or cannot continue going forward?

Speaker 2

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

Speaker 5

And I mean And

Speaker 2

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

Speaker 5

Yes. I was just going to

Speaker 4

say bigger picture like Brian you just mentioned north of 96. Is there any reason to think maybe based on what David said that's kind of a ceiling or there could still be continued upside potential?

Speaker 2

Well, I'd be cautious That's a pretty good number for us year end. What was the real one we last year, Fred? Tom knows every number, but he's suffering. So it's a pretty good increase from last year,

Speaker 1

95.48. 95.48.

Speaker 2

So maybe, maybe there's upside.

Speaker 4

Okay. Thank you.

Speaker 2

Thanks.

Operator

Our next question

Speaker 3

good afternoon and David. Certainly good to hear you on the call. Hope the recovery and all the stuff is going well. Just a question for you big picture. Jeff kicked it off in a number of my peers have all asked the same question.

Speaker 3

But as we look at the environment today, certainly there's a lot less retail availability. There's been a big shakeup not only among the retailers themselves, but also the landlords. And certainly, cost for new development has gone through the roof. So as you look at the picture today with the economic concerns, but also at the same time that the tenants seem to be in better capital positions. Are you as worried today when you see weak economic data?

Speaker 3

And does that impact the way you think about expanding, putting money to work and how the leasing conversations are going? Or do you think that we're in a better situation or worse situation? Like how do you judge where we are now just given that the environment seems to be different than it has been over the past few decades?

Speaker 2

Well, thank you, Alex, for the thoughts. And let me just answer your question. So I frankly think that listen, it sounds like I'm talking our book, which obviously you would expect us to do. But we have never been better positioned. So if we do so I don't look at the current uncertainty and even a potential recession.

Speaker 2

No one wants to go through that, but given how we're positioned, I think we're in an absolute unequivocal position to improve and better our company. So again, we don't want to go through recession, but if we do, the gap between us and everybody else just gets bigger and bigger. Our gap, if you look at kind of where we started 3 years ago and that's where we are today, the GAAP is pretty damn big. It will all be in there. And that's a testament to the team and everybody else.

Speaker 2

So and honestly, I'm not looking at a current potential recession or tough market as any basis to slow down. Look at an example, we just started construction in North Bay, building 234 apartments. We expect to do another phase of that probably in the next time as we go through the pricing. So from our standpoint, we're not slowing down. And if the economy slows dramatically, the gap between us and just about everybody else will only get bigger.

Speaker 2

And that gives us opportunities to do some interesting stuff.

Speaker 3

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

Speaker 2

I think the better retailers that are we have a number of retailers that are in really good financial standing and I think they take a longer view just like we do. Not everyone, but I would tell you the majority of who we're doing new business with is definitely taking a longer term view. So they're looking to gain sales and market share as well. So we're certainly not on the defensive into that kind of the turmoil over the last few weeks. And if anything, we'll step up our investment activity, but not foolishly.

Speaker 2

I mean, we'll do it like we do everything else, but we don't see it as a reason to rein in at this point.

Speaker 3

Thank you. Sure.

Operator

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

Speaker 6

Good afternoon. Thanks a lot for taking my question. You continue to drive nice NOI growth driven by both occupancy gains and higher rents. Now we've talked a little bit on the call about occupancy potentially approaching a potential ceiling. So do you see increasing pricing power with that to maybe offset that?

Speaker 6

I'm just trying to get a better understand of how the algorithm kind of looks in the coming quarters. Thanks.

Speaker 2

Well, again, occupancy is like any statistic is 1. And again, to be clear, we do think we'll increase our occupancy. The bigger opportunity for us is again to continue to increase better than mix. So and that drives obviously the better the mix, the higher the sales, the higher the sales, the more likelihood that you're going to have higher rents. So that's the big focus as we continue to merchandise our properties.

Speaker 2

Brian, I don't know if you want to add anything to it. Yes, Michael, look, we continue to see pricing power. Roughly rents are similar where we've seen escalation last year as we talked about rents in the 70s for new deals. That's continuing and as we find more and more retails and update the mix, it drives demand and it ultimately drives our pricing power. So there's a recurring theme here relative to that.

Speaker 6

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

Operator

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

Speaker 7

Hey, guys. Maybe shifting gears a bit to the balance sheet and just the rate environment here. Just your thoughts generally with a 3.8%, 10 year. If that's at all changing your view on the upcoming debt maturities in the back half of the year and how to fund those versus how much cash to keep on hand versus David, maybe your commentary about the gap between you and others, your ability to be on the offensive to make investments now that if we do go into recession, by the time they're done, you're kind of on the other side of it and you're well positioned. So I'm just kind of curious, I know it's a broader question, but just how the kind of the softening rate environment here, does that change anything you're doing or how you want to be positioned on the margin?

Speaker 2

Craig, it's Brian. Look, one day doesn't really change our financing plans for the year. We're sitting on $3,100,000,000 of cash. We had $1,900,000,000 in maturities in the back half of the year. Current plan is still to refinance those out with cash on hand.

Speaker 2

But to the extent we were to see opportunity to do alternatively or the market opened up with tight spreads, certainly we could access the market in the back half of the year as well, but no current plans to do so at present. Yes. And I would just say, look, we got $11,000,000,000 of liquidity. So obviously, a lower interest rate environment does increase our earnings potential. There's all sorts of things associated with the lower interest rate environment, but by and large, that's beneficial to real estate.

Speaker 2

So if that's the case, that's going to be better than what we planned initially for this year and what we're thinking for next year. So that's good news in a nutshell. But again, remember, we got we're not living mortgage to mortgage. We're a different kind of company. So we don't have the Holy Toledo, I was going to say another word, Holy Toledo, we can't refinance this mortgage.

Speaker 2

So anyway, so but by and large, if rates go lower, that's better for this company.

Operator

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

Speaker 7

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

Speaker 2

Well, it's a good question. And that's when I would just say judgment comes into play. I mean, we have been as you know, right, because if there's any material we disclose it. We haven't really done anything external for quite some time. And we're going to just be looking at quality stuff where we can add value that's appropriately priced.

Speaker 2

And up until this point, frankly, we haven't found it. So that doesn't mean that we're discouraged, but we'll keep doing that because that is an element of what this company is good at. And we would like to add quality where we could add value at the right price. And if it's not at the right price or if it's not at the right quality, there's just nothing here for us to do. We're not we're basically out of the portfolio business.

Speaker 2

So as far as I can see, I mean, things change, but I just don't see us buying another big portfolio that where we'd have to slop off a handful of properties. So we're really going to be selective. And but again, it's going to be at the right price. And if we can't get it at the right price, then we've got plenty to do. And that's we'll keep our liquidity and keep doing what we're doing.

Speaker 2

Thank you. Sure.

Operator

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

Speaker 3

Great. Best wishes to you David as well. Just a quick one for me. Just could we double click on some of the strength that you talked about in the portfolio, maybe breaking it down between maybe malls versus outlets or some of the tourist centers as well would be helpful?

Speaker 2

Well, Ron, I think you're seeing broad based demand across all of our platforms. So it's difficult to kind of give you an individual kind of thumbnail into it. But certainly, we see we over index in our outlet business certainly towards international tourism. That's still very strong for us. That's a driving factor kind of in our outlet business results.

Speaker 2

But certainly, retailers are doing business across all three formats. Your new same bills have high occupancy ever. So the demand is broad based from all retailers across all three major platforms of ours at this point. David, I don't know if you Yes. It's kind of interesting.

Speaker 2

I just don't think there's like a unique trend. So it's not Florida or Texas. It's not outlets or malls. It's not enclosed versus outdoors. It's really very property specific.

Speaker 2

And I would say that the quality and the good stuff is getting better and it's almost our traffic, which is a good indicator, was pretty much across the board. So I say there's no unique unlike COVID where when you came out of COVID, it was Florida and Tech, kind of the smile states and whatever. I think it's really property specific. And it's not so you could have a great property in XYZ City and a not so good one in XYZ City and their tale of 2 stores. So I really think it's property specific and I don't think there's any one particular trend to focus on at least in this quarter.

Speaker 2

Might have a better sense of it by year end and see how things shake out, but not right now.

Speaker 3

Great. Thank you.

Speaker 2

Sure.

Operator

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

Speaker 8

Hi, thank you. And David as well,

Speaker 3

I wanted to wish you best wishes and hopes for a speedy recovery here.

Speaker 8

My question tonight is, I wanted to go back to the strong and broad based demand you mentioned

Speaker 3

you're seeing for space across the portfolio. I was hoping you could provide a

Speaker 8

bit more color on the size of the backlog of leases that are coming online and maybe some color on the timing of that. And is there also any update you can provide on

Speaker 3

the 3% or the at least 3% domestic NOI growth from last quarter for the core? Thanks.

Speaker 2

Hey, Edel, it's Brian. As we think about demand, we've got a size but not open pipeline of about 300 basis points. You heard David talk about mix and so we are moving some tenants around. So that's not all just additive, although we saw them coming out of the bottom of that for sure. But that's just a further indication of the work that our team still on in demand for space to have 300 basis points signed, but not open pipeline for us.

Speaker 2

So really kind of that defines or really gives you a really good sense of the breadth of what's out there for us as far as demand for space.

Speaker 3

3% at least 3% Mike?

Speaker 2

We don't update that as we go. We established at the beginning of the year, Haendel, and try to do our best to that number which we have thus far.

Speaker 3

Got it. Thank you.

Operator

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

Speaker 9

Hi, good evening. How much do you think changes in the stock market impacts consumer spending at the higher end? Just from your experience over the years, like at what point does stock market volatility really start impacting consumer behavior and consumer sales?

Speaker 2

I think it's more that's a I wish I had an algorithm. I don't, but I'm sure we could get AI to do something for us. I would my history would suggest short term fluctuations mean absolutely nothing. But over time, if you had a down market for 6 or 9 months, you're going to reign in consumer spending. So I do think it's going to have to take the downward trend or the volatility is not going to really impact the consumer in the next short period of time.

Speaker 2

But if you see it for several months, then I would expect us to see some slowdown in consumer spending. It does take time to see, but I think that the consumer is used to seeing some volatility and they have some probably built in gains that they never thought they would have had, right? So when companies get valued at trillions, I remember when a $50,000,000,000 market cap was dead. When companies get valued at $1,000,000,000,000 of dollars and that's a lot of retail. I hope those retail investors are smarter than themselves and then spend the money in our malls.

Speaker 2

I mean that would be a good cycle for us, okay? So I think even if these levels were in pretty good shape, if you have kind of a longer downturn, then it's realistic to think that consumer spending is going to be reined in. Offsetting that obviously will be low inflation, lower interest rates and you can potentially see a scenario that we dealt with pre COVID, right? So it's there's a lot of variability out there, Vince. And but I don't think short term fluctuations are going to have an immediate impact.

Speaker 9

It makes sense. If I could maybe ask one quick follow-up along those lines, like just how should we think about the sensitivity of Simon's cash flows to tenant sales? I mean, with all kind of the COVID changes, it seems like most of that's unwinded at this point. But kind of just, yes, is there any guidepost you can share of like how much rent or how much of your total revenue rather is made up of overage and percentage rents? Or just how much volatility is there on your business from if tenant sales were to

Speaker 2

be great? Yes. Look, Brian may have a number. I would just say big picture, a lot less coming out of COVID, but higher probably than pre COVID. And so I don't know what percent that is, Brian.

Speaker 2

If you don't, we could probably give that number to you. But it's certainly a lot less than when we started in COVID, but higher than probably pre COVID. We'll follow-up offline, Vince.

Speaker 9

Great. Appreciate the time. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 10

Hey, good afternoon. David, we share a birthday, so I'm pretty excited about that. But for my question,

Speaker 2

How old are you going to be?

Speaker 10

Do you really want

Speaker 2

me to share that? No, no, not at all.

Speaker 10

So we noticed that the overall same store NOI growth this quarter was healthy and but largely driven by the consolidated portfolio. We had international NOI was down 1% year over year, JV revenues down about 4% versus last year. Is there anything in particular that's impacting the international and JV assets this quarter? And do you expect to see those return to year over year growth in the back half?

Speaker 2

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

Speaker 6

Okay. Yes.

Speaker 2

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

Speaker 2

Okay. Thank you very much. Sure.

Operator

Our next question is from Floris Van Dijk from Compass Point. Please proceed.

Speaker 11

Hey, thanks. Glad to hear you're doing well, David. You sound great. Question on value retail. I know you guys own a stake in that.

Speaker 11

It's sold at an incredibly low cap rate to Caterton, who I think is the investment arm of LVMH. Could you maybe talk about maybe and I think that it's a different market obviously, but if you could talk about the cap rates environment in Europe versus here and maybe also the long term nature of some of these big luxury brands? And do you see them putting money to work at those kinds of cap rates? I mean, I guess they have already on Fifth Avenue, but in the mall business as well in the U. S.

Speaker 11

In your view?

Speaker 2

Well, let me thank you. Let me try to unpack that a little bit, okay. So, Forrest, let me I would say, 1st of all, LCAD has been very smart investors. And value retail is a unique structure. So I don't think you can look through their investment that was at a significant discount to NAV to get to a cap rate without really having intimate inside knowledge, which you and I don't have, okay?

Speaker 2

But they're very smart investors. And I don't think this is a so that's the first point I'd like to make just on that question. 2nd is, I think again, it depends on what brands you're talking about, whether it's luxury or higher end or whatever, better, moderate. Every retailer is different. Everyone's looking to increase their sales and every brand is different.

Speaker 2

So it's you cannot paint a luxury investor by one broad stroke. So and even within some of the larger groups, their brands are different. You may have one brand growing, one shrinking, what have you. I don't expect, again, El Catas is also owned by the principles of El Catas. So it's not just the group.

Speaker 2

I don't think there is a trend for them to suddenly invest, got some money in retail real estate, but I could be wrong. And I think it really depends on each brand and what their strategy is.

Speaker 11

And if I may follow-up, I mean, are you having how are your discussions going with your institutional partners here in the U. S. In the mall business? Are those partners happy? And would you are there opportunities for you to maybe buy some of them out?

Speaker 11

Or are they pretty comfortable owning some of those top malls that you typically JV with them?

Speaker 2

Well, I would say overall, we hope that our relationships with our institutional partners is excellent. And again, it's there's very hard to paint a broad brush. I would say by and large most are very complementary, very happy to be our partner. There's always an asset here or there that may not fit with them long term. But I would say generally, it's kind of business as usual with our institutional investors.

Speaker 3

Thanks, David.

Speaker 2

Sure.

Operator

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

Speaker 5

Hi, good afternoon. On the 300 basis points of signed but not occupied, what does that represent in dollars? What's the timing of that coming online? And would you expect this to compress going into next year?

Speaker 2

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

Speaker 5

And would this signed but not occupied be down year on year at the end of next year from where you sit today?

Speaker 3

It's really difficult to predict what's

Speaker 2

going to happen 12 months from now, Linda. So it is what it is right now. Ultimately, as we continue to kind of move through, we've seen some consistency in that number and some increase, right, when you're talking about it is about 200 basis points a year ago. So you've seen increase over the past 12 months to get to 300 basis points per day.

Speaker 5

Thanks. And what's that represent in dollars?

Speaker 2

I don't have that number in front of me here. Yes, that's usually not something that we're that's something we're not going to really disclose because then you would had all the leases up and annualize the number, but it's a big number.

Speaker 5

Great. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 12

Yes. Hi, David. We're glad you're on the call as well. For the question, TRG's year over year base rent growth, looks like it was over 8% in the second quarter. Can you talk about what's driving that growth?

Speaker 2

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

Speaker 2

It's a smaller portfolio, much smaller portfolio than ours, so you're just getting a bigger percentage jump from

Speaker 3

it. Got it. Okay. Thank you.

Operator

Our next question

Speaker 3

So just curious, if there was a consumer downturn, could you discuss how your portfolio might perform today versus a few years ago? I realized the tendency might have changed significantly over the years, towards less apparel, more services, restaurants or other uses. And trying to look at this from a sales sensitivity standpoint versus maybe a credit sensitivity standpoint because I can understand those two things might be different.

Speaker 2

Yes. Sure. I'll take a shot at it. So I mean, historical recessionary times, and again, we're not in that camp just yet. I mean, you call me in 2 months and we might be.

Speaker 2

But I would say our NOI cash flow tends to flatten out. It's very obviously, there's so many variables that go into it. But I hate still talking about COVID, but we really didn't see other recessions, really didn't see cash flow from the properties go down, they flattened. I would think not knowing exactly if and what kind of recession it is and how hard and how deep and all that other stuff, it would be hard to give you a number other than to say history would indicate our cash flow is relatively flat. We weathered pretty nicely because what happens is tends to happen is big ticket items tend to go on the back burner and the stuff that we sell at our properties tends to maintain itself.

Speaker 2

So that would be the best guess at this point, but it is almost impossible without kind of knowing exactly what kind of market that we're in. But again, we're not in that camp yet. And we might be later on in the year or whenever, but I would think our cash flows would be relatively flat assuming it's you just it's hard to say what a typical recession is anymore. But I would say that's probably the best guess at this point.

Speaker 3

Okay. Thank you, David.

Speaker 2

Sure.

Operator

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

Speaker 4

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

Speaker 2

Well, I'll just say in Brian's remarks, we definitely have a decent impact from the retail restructurings. I mean, also we have a little lower lease settlement income, a little lower land sales than we had budgeted. But if you put those 3 categories together, it's about $0.15 that we had planned on being there that aren't there this year. So obviously, we factored in the Express restructurings in Roo and so on. So those numbers are reflective of our new guidance.

Speaker 2

It doesn't reflect if there's a material new one coming up, but we don't know of anyone that's on the road. So Brian, you can add whatever you want to add. Yes. Watch list continues to be relatively flat. Those things that have happened, we had a thought that they would and it planned ahead.

Speaker 2

We don't really see much on the horizon at this point. No new additions to the watch list at this point either, Caitlin.

Speaker 4

Got it. And then maybe one more if I could. Just the contribution to the portfolio from the retailers. I think your latest comment was for flattish contribution in 24. So just wondering if there was any update to that and maybe like your visibility or confidence in the back half of the year?

Speaker 4

Thanks.

Speaker 2

Well, look, I think we continue to work through it. If you look at that whole PennEastPark, RGG, Jamestown, we basically have around $200,000,000 plus or minus EBITDA in that kind of OPI bucket now that AVG is out. And it'll be plus or minus a couple of cents here or there. So because again we have accounting, we've got lots of depreciation, You don't add that back. And the brands within Spark, the lower income consumer continue to fight through a tough market for that consumer.

Speaker 2

So there's not a lot of new news other than the team at Sparks working very hard. The new stuff that they're buying is working, but it continues to be a very competitive marketplace.

Speaker 4

Okay. Thanks.

Speaker 2

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

Speaker 2

And we'll talk in the near future. Thank you.

Operator

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

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Earnings Conference Call
Simon Property Group Q2 2024
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