Simon Property Group Q4 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 4, 2025
Skip to Questions & Answers
Operator

Greetings, and welcome to the Simon Property Group Fourth 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. If anyone should acquire operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Tom Ward. Thank you. You may begin.

Thomas Ward
Senior Vice President-Investor Relations at Simon Property Group

Thank you, Matt, and thank you all for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer and President; 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. Reconciliations of non-GAAP financial measures to the most directly-comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com.

Our conference call this evening will be limited to one-hour. For those of you who would like to participate in the question-and-answer session, we ask that you please respect our request to limit yourself to one question. I'm pleased to introduce David Simon.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Good evening. I'm pleased with our financial and operational results in the fourth quarter, concluding an exceptional year for our company. We reported record total funds from operation of $4.9 billion or $12.99 per share. We generated $4.6 billion in real-estate FFO or $12.24 per share, which was growth of 3.9% year-over-year.

We returned a record of more than $3 billion to shareholders in cash dividends and now we have paid approximately $45 billion in two shareholders in dividends over our history as a public company. We saw record leasing and retail sales volume and occupancy gains for the year. We completed last week the acquisition of the mall, two well-known luxury outlet centers in Italy from Caring. We look-forward to adding these high-quality luxury assets into our global portfolio, while continuing to build upon their success.

We opened a new fully leased premium outlet in Tulsa, Oklahoma, and we completed 16 significant redevelopment projects during the year. Development -- redevelopment opportunities are growing within our portfolio. We delevered our A-rated balance sheet by providing additional capacity and flexibility to fund future growth.

I'm now going to turn it over to Brian, who will cover our fourth quarter results in more detail and provide our outlook -- outlet -- outlook for 2025.

Brian J. McDade
Executive Vice President and Chief Financial Officer at Simon Property Group

Thank you, David. Real-estate FFO was $3.35 per share in the first -- in the fourth quarter compared to $3.23 in the prior year, 3.7% growth. Domestic and international operations had a very good quarter and contributed $0.18 of growth.

During the quarter, we sold assets that resulted in a tax benefit, which partially offset the prior tax expense from our ABG sale and essentially offset a write-off of pre-development costs associated with a joint-venture development project in California. Leasing momentum continued across the portfolio. We signed more than 1,500 leases for 6.1 million square feet-in the quarter.

For the year, we signed a record 5,500 leases for more than 21 million square feet. Approximately 25% of our leasing activity for the year were new deals. Malls and outlet occupancy at the end-of-the fourth quarter was 96.5%, an increase of 70 basis-points compared to the prior year.

Our year-end occupancy is the highest-level over the last eight years. The mills occupancy was 98.8%, an increase of 1% and is at a record level. Average base minimum rent for the malls and outlets increased 2.5% year-over-year and the mills increased 4.3%. Retailer sales per square-foot was $739 for the year.

Strong revenue growth across our businesses, combined with expense discipline resulted in a 100 basis-point increase year-over-year in our industry-leading operating margin. Our occupancy cost at the end-of-the year was 13%. Domestic NOI increased 4.4% year-over-year for the quarter and 4.7% for the year. Portfolio NOI, which includes our international properties at a constant-currency, grew 4.5% for the quarter and 4.6% for the year.

Fourth quarter funds from operation were $1.39 billion or $3.68 per share compared to $1.38 billion or $3.69 per share last year. fourth quarter results include $0.20 per share of non-cash after-tax gain from the combination of JCPenney and Spark Group. The mark-to-market fair-value of exchangeable bonds increased year-over-year, which offset a lower contribution from OPI operations. As a reminder, the prior year results include $0.33 per share in gain from the sale of part of our interest in ABG last year.

Turning to new development and redevelopment. This year, we will open our first premium outlets in Jakarta, Indonesia in March and expect to begin construction on four to five mixed-use projects throughout the year. We expect to fund these redevelopments and mixed-use projects with our internally generated cash-flow of over $1.5 billion after our dividend payments. Other platform investments, JCPenney and Spark Group combined to form a portfolio of iconic retailer banners called Catalyst brands.

Catalyst brings together SPARC brands, Aeropostale, Brooks Brothers, Eddie Bauer, Lucky and Nautica with J.C. Penney in its exclusive private brands. Catalyst sold Reebok in early-January and is currently evaluating strategic options for Forever 21. We view the Catalyst transaction as a positive development that will create significant synergies with a solid balance sheet that will enable the company to drive EBITDA growth. Catalyst shareholders include Simon, Brookfield, Authentic Brands Groups and Sheen.

Turning to the balance sheet. During '24 -- during 2024, we completed $11 billion in financing activities, including issuing $1 billion in senior notes with a 10-year term and a 4.75% interest-rate. We recasted our $3.5 billion revolving credit facility with maturity extended to January of 2030 and no change in pricing or terms and completed over $6 billion of secured loan refinancings and extensions.

Lastly, we delevered our balance sheet by approximately $1.5 billion in the year and ended the year at 5.2 times net-debt to EBITDA. Our A-rated balance sheet provides a distinct advantage with more than $10 billion of liquidity at year-end. Additionally, today, relative to our dividend, we announced a dividend of $2.10 per share for the first-quarter, a year-over-year increase of 7.7%. The dividend is payable on March 31.

Now moving on to our 2025 guidance. Our real-estate FFO and our real-estate FFO guidance range is $12.40 to $12.65 per share. Our guidance reflects the following assumptions, domestic property NOI growth of at least 3%; increased net interest expense compared to 2024 of between $0.25 to $0.30 per share, reflecting current market interest rates and projected cash balances compared to 2024.

Lastly, our diluted share count of approximately 377 million shares and units outstanding, due to the recent Catalyst brands transaction, we will not include catalyst guidance at this time. We expect there will be significant savings and synergies from the combination that will be coupled with potential restructuring costs. We expect Catalyst will generate positive EBITDA in fiscal 2025 and roughly breakeven FFO as they work-through the combination.

Oh. With that, thank you. And David and I are now available for your questions.

Skip to Participants
Operator

Great. Thank you. We now be conducting a question-and-answer session. If you'd like to ask a question, please press Star-1 on your telephone keypad. A confirmation call will indicate your line is in the question queue. You may press star 2 to remove yourself in the queue. For participants using speaker equipment, it may be necessary to pick-up your handset before pressing the star keys. One moment please while we poll for questions.

Our first question is from Jeff Spector from Bank of America. Please go ahead.

Jeffrey Spector
Analyst at Bank of America Securities-Merrill Lynch

Great. Thank you. I know you'll get through some of the numbers through some of the other questions. I wanted to focus on some of the initiatives you have to bring people to the mall. I know you have the Tomorrow Stars, the meeting at the mall when your traffic was up at malls, premium outlets. And can you talk a little bit more about some of the programs initiatives that you're doing to again bring the shopper to the mall and how did those programs go for the holiday season? Thank you.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Well, listen, I think we're leaders in this area. You know, our national advertising campaign is all about talking about how it's fun to go to the mall and hang out just like in the 80s and 90s we have a very good reception to it. We rebranded Simon Premium Outlets to ShopSimon.

We're in the midst of creating our loyalty program. So and then obviously we've got events, thousands of events that drive traffic through the year, whether it's breast cancer awareness programs, Valentine's Day, basically every major event that occurs at within the US, we try to drive an event around Easter down the road.

So I couldn't be prouder of our marketing efforts. They're very digital, they're very fun. They use new media in a lot of ways. And I just expect more-and-more. And more importantly, we're seeing return on investment. And we've got the data to prove that. And not that our peer group is wide and deep, but to the extent that it is, you know, there's nobody doing more when it comes to data, digital comments commerce with Jack Simon marketing events you put it all together were leaps of leaps and bounds, you know compared to what else is out there? Thank you.

Jeffrey Spector
Analyst at Bank of America Securities-Merrill Lynch

Thank you.

Operator

Next question is from Steve Sakwa from Evercore ISI. Please go-ahead.

Steve Sakwa
Analyst at Evercore ISI Group

Yes, thanks. Good evening. David, you guys obviously had a great year with 21 million square feet of leasing, occupancy up. Given where you're sitting on the occupancy side, I'm just curious how the discussions that your leasing team are having with the retailers is kind of shifting and maybe talk about the pricing power and how that's kind of returned to the mall for the A's. And I guess to tie that into NOI growth, you've talked about greater than 3%, but you certainly beaten 4% for the last like three years in a row. So what are we missing on the 3% front and maybe just comment on pricing power. Thank you.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah. Well, let me just talk about 3%. So look, we as we did last year, we budget flat sales. Why I don't really know, but that's what we do. And when you do that, know, we come up with a conservative number. To the extent that we have sales growth like we did this year. You know, again, maybe not -- maybe not overall, but the retailers that matter, you know, we generate overage rent, which obviously pops our NOI growth.

So I hope we're being conservative. Obviously, there's pretty good animal spirits in the US and its economy. We expect it to participate in that. And again, I don't -- I don't like the word pricing power. I just think you know we're able to -- we have deep relationships with our retailers and we're able to generate a lot of new business.

We see new retailers approach us all-the-time and new uses all-the-time which essentially allows us to and one of the big things of growth allow -- we're not -- we're never stuck with the tenant mix that we have. So what -- and I think Brian knows the numbers specifically, but I think 25% of our leases this year were new.

So what's driving a lot of what we do is we're able to take you know, the retailers that aren't doing the sales and replace them with ones that will. And that because they'll do better volume, that drives rent growth. And then I don't call that pricing power. I just think that's improving our mix and doing what we need to do to drive our business forward.

And as I said, I think last call is, we still think we have an opportunity because frankly, we've been organizationally very focused on you know that you know for no better or the A's, we do think there's real effort, focus growth for us in the Bs where we're investing our dollars. So that's a big program for us in '25 and '26.

And just to cap off your last -- your question, we still feel -- and again, it's hard to predict because you know there's always downtime, tenant bankruptcies, et-cetera. But we still feel like we have upside in our occupancy. We're still not at our guide that was 97.1%, if I remember right, in 2014, I'm shaking his head yes. So we still some message to my leasing team if they're listening, I don't mind if they're not, if they're making a lease, but assuming they're listening, let's get up to a record-high just in 2014 and then we'll take a deep breath, but we won't tell that.

Operator

Next question is from Michael Goldsmith from UBS. Please go-ahead.

Michael Goldsmith
Analyst at UBS Group

Good evening. Thanks a lot for taking my question. Maybe just following off the last one, right, the NOI expectation dropped from 4% last year and for the last several years is down to 3%. So bridging the gap between those expectations, it sounds like some of that is retail sales, but it sounds like occupancy, there's still upside, but is there the same magnitude of upside? And then also, are you taking into account any sort of tenant bankruptcies or credit reserve in that as well, which is driving that by 100 basis-points? Thanks.

Brian J. McDade
Executive Vice President and Chief Financial Officer at Simon Property Group

Hey, Michael, it's Brian. So I think first, we've historically put out at least 3% at the beginning of every year, including last year and then have subsequently beat that, which we've repeated here. I think you just heard David talk about the overage component, we budgeted -- assumed sales were flat, so there's a negative componentry mathematically to overage in the subsequent year. You heard us just talk about mix. And so as we swap out tenants for new tenants, there is downtime specifically associated with our full-price business as we build-out those stores.

The last thing I would mention, you just mentioned bad debt. Our numbers in '25 take into consideration our historical approach to bad debt. We did slightly better than that in 2024, but we've taken an appropriate expectation into '25 relative to our standard approach. So those are the three major drivers that would get you kind of back to a -- from this year's number down to a 3% number for, again, as a baseline starting in '25.

Michael Goldsmith
Analyst at UBS Group

Okay. Very helpful. Thank you very much.

Operator

The next question is from Craig Mailman from Citi. Please go-ahead.

Nick Joseph
Analyst at Citi Investment Research

Thanks. It's Nick Joseph with Craig. David, just want to touch on the potential impact for tariffs. Obviously, the news keeps changing but just broadly, what are you hearing from your retailers? How is it impacting their business and kind of the uncertainty there and the potential impact of the de-minimis exemption going away?

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah. I don't -- you know, it's interesting just our firsthand -- I don't know where every retailer sources their goods. But if you take catalyst as an example they only source 20% of their goods with all the brands of about 20 in China okay so and you and we talk to catalyst their view of it is with respect to China that they'll pass some of it on to the consumer, but also hope that the supplier tightens up the cost-of-goods-sold. So many, many retailers have moved a lot of production out of China over the last several years. And the good news is where we had kind of the most exposure was shoes, which Reebok would have been more exposed. But as you know, we disposed of the Reebok operating business in January.

So no one is really -- honestly, it hasn't affected by day-to-day decision-making and it's relatively reduced amount for the retailers. What's really going to be helpful to the American retailers and the non-Chinese retailers is to get rid of the de-minimis rule, which basically exempts tariffs if you send a package over $800 you know to a customer that's not a level-playing field that causes retailers to pay more that chip-in bulk and it's given real benefits to someone like the where they've shipped purposely under the $800.

Congress is taking it up. I know the president is taking it up and that will absolutely be if an active will give a real shot in the arm to retailers that don't purposely, don't purposely try to send their goods to get under the $800 limitation, not only to say it's also more green, it saves packaging costs, etc. It's good for our country and I hope Congress and/or the President enact it. That to me is more material than any terrorists that are being talked about.

Nick Joseph
Analyst at Citi Investment Research

That's very helpful. Thank you.

Operator

Our next question is from Floris van Dijkum from Compass Point. Please go-ahead.

Floris van Dijkum
Analyst at Compass Point Research & Trading

Hey, thanks for taking my question. Good to hear your voice, David. A couple of questions, but I guess I'm going to focus on your latest acquisition in Italy. I note that Karing just snuck into your top-10 list this past quarter prior to the acquisition.

I'm curious if you can talk about that acquisition, the returns that you expect to achieve and how you might be able to manage those assets going-forward? And also what would carrying's percentage have been had they been included? I guess I know that your top-10 is domestic only, but how much of an impact would that have on the -- if you were to include Caring's exposure in Europe as well.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Well, let's -- on that particular point, you'll see that in our next supplement. So it will go up, but you'll see that in our next supplement. Look, I would say, you know, we're under confidentiality agreement on, you know the details other than the price. I will tell you we've been very, as you know, very selective on the acquisitions and we're only buying top stuff at the right price. This follows 100% of that strategy. So it's top stuff at the right price. Carrying will remain a long-term tenant in that. They have a very -- they've had historically a very competent group that ran it for them, obviously because they're not that's not their main business as you know.

We've taken over that team. We'll help them with strategic guidance and we think there's upside in the business. We think it's NAV accretive for us. We also think it's earnings-accretive for us. So it again is a something we wanted to do years and years ago but they weren't ready to do it. We're extremely excited about doing it, the location, Italy's, you Italy's in a renaissance, so it's got one of the positive growth in the EU and this is these are the kind of deals we want to do is buy it at the right price. It's accretive to NAV, accretive to earnings, but it's also high-quality with the right retailers. And we couldn't have -- we couldn't have done a -- we couldn't have picked a better a better asset in terms of, you know, in terms of this.

Floris van Dijkum
Analyst at Compass Point Research & Trading

Thanks, David.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Thank you, Floris.

Operator

Next question is from Greg McGinniss from Scotiabank. Please go ahead.

Greg McGinniss
Analyst at Scotiabank

Hey, good evening. David, following-up on your comment regarding the focus on B-mall investments in 2025, '26, are you able to talk about the types of investments that you make in those malls, whether it differs from how you would approach investing in an AMOL? And then any detail on the magnitude of those investments and expected return? Thanks.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

I'll just be very generic. I know Brian can lay it out for you later. But to me it's a whole combination of things. These are, you know, important assets in the communities. You know, we've been focused on the bigger assets historically. So it's a combination of adding boxes, updating the look, feel of the place, restaurants, tenants, everyone changes a little bit differently.

But I'll just take -- you know, Smith Haven as an example. We're going to -- I got to be careful because I don't know if I can announce it even though the lease is signed. So I think an announcement is coming. The business in basically Eastern Long Island where we're going to update, renovate the property, add a great retailer in a huge box.

We just added Primark hospital just opened up their one of their health facilities and that will probably be about a 12% return and over the next couple of years and it will be a renovated rejuvenated asset that because of all the progress we've made in the bigger ones, we're able to kind of reenergize our focus on an asset-like that. But there -- the list of those is long. So you know, Brian can go through it, but that's just one kind that jumps the top-of-mind and to my team I'm supposed to see a press release on that but I haven't seen it so please move that along.

Greg McGinniss
Analyst at Scotiabank

Thank you.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Hello?

Operator

I'm sorry. Next question is from Alexander Goldfarb from Piper Sandler. Please go ahead.

Alexander Goldfarb
Analyst at Piper Sandler Companies

Hey, good evening, David. Good to hear you. And I'm sure the people out of Smithtown will appreciate the dollar spend. A question on your guidance for '25. Obviously, very good versus expectations despite the headwinds on the interest expense that Brian laid out.

So my question is, is this back to sort of the old Simon days pre-pandemic where you guys just had strong internal growth that was accelerating or is this more about removing OPI drag from the future? I'm just trying to understand if this is just all the side but not yet leases taking effect or if truly the underlying portfolio is accelerating and we're going back to where you guys used to be pre-pandemic when the core portfolio would just -- was really just humming along?

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Well, the $12.40 to $12.65 excludes capex. The other investments in OPI are small. So they -- they're -- and again, they're neither -- you know, FFO is probably the wrong way to look at those investments, but you know, they run-through FFO anyway because they're -- one is an asset management company and one is an e-commerce marketplace and an e-commerce retailer.

And so FFO is the least important metric on those, but they run-through our numbers. So catalyst is outside of that number. And I don't like the word old, Alex. But yeah, no, we're growing the portfolio. We said at least 3%, I think we said at least 3% last two years, 83, I don't remember three years, Brian saying.

So hopefully, we can beat that and that's basically, you know, all the stuff that leads to that, which is leasing, you know, focused operational margins, events, Simon Brand Ventures you know, replacing boxes, restaurants, you know, all of the -- all of the basics and we still see that.

I think we've had a pretty good run, forget the big juice that we got back from -- getting back to business after we were unreasonably shut-down by various state governments but we've been clipping along 4% plus even though we guided to 3% and let's see how this year transpires, but we've got a lot going for us. And the biggest of which is great team, leasings focused.

We feel that there's upside in the portfolio across-the-board, but you know, primarily in our historical red and butter properties. We're going to do smart deals. We're prudent with a hell of a balance sheet and you know I think and we're leased lease I think it's you know not overly complicated.

And then Catalyst you know will it's obviously a big six months as they go through it and we'll have a better sense of kind of, you know it will be positive EBITDA for sure, but we'll have better idea of FFO, you know, as the year progresses. But just to be clear, it's not in our number as of as of what we've guided to in the $12.40 to $12.65.

Alexander Goldfarb
Analyst at Piper Sandler Companies

Okay, good to see the magic.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Thank you.

Operator

Our next question is from Juan Sanabria from BMO Capital Markets. Please go-ahead.

Juan Sanabria
Analyst at BMO Capital Markets

Hi, great to hear your voice, David, as well. Just a question on the leasing. It looks like about 5% is still month-to-month. I think that's still kind of above where you were pre-COVID in 2019. So just curious on how you think that will evolve over-time? And is just like a second or part B of a question. How has the SNO pipeline changed if at all over-time? And could you just give us where it is as of year-end, please?

Brian J. McDade
Executive Vice President and Chief Financial Officer at Simon Property Group

Hey, Juan, it's Brian. SNO at the year-end was about 250 basis-points as we brought occupancy on in the fourth quarter and you saw that in the numbers. Month-to-month, we'll -- as we move leases through our leasing process, ultimately, not everything gets signed at the same time. So we put that into that category. Nothing there. We're in the process of renewals in year-end leasing. And so ultimately, we would expect that number to come down throughout the year.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

No, I just would say we're slightly -- a bit alive for me, I don't understand why it takes so long. But put that aside, we do get our releases signed-up and we are slightly ahead of where we were last year-on our renewals in some, I should say. But we've got commitments on a lot of it.

Operator

Next question is from Vince Tibone from Green Street. Please go-ahead.

Vince Tibone
Analyst at Green Street Advisors

Hi, good evening. I have a few questions related to the mixed-use projects you mentioned earlier. So what is the expected pro-rata spend on the four to five mixed-use projects to break ground in '25? And also like what's the common structure? Are you doing this primarily on your own balance sheet or using joint-venture partners the non-retail components? And then also, is it mostly residential or like what are some of the other non-retail property types in there? Sorry for the question.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah, I'm sorry to interrupted you. So it will be around $400 million to $500 million. And again, we are when I look at the ones that we're expecting to start this year, they're all JVs and they will run from residential to a couple of hotels to office. And just to give you a sense what's in that category, we expect to start a hotel in Roosevelt Field, a big residential project in Brayette office of and we're expanding the hotel at the domain in Austin, Texas.

Those are all pretty much planned for. I would expect this to add to that this year. As you know, we've got Northgate under-construction. We are going to somewhat accelerate if we can, anything we're planning in California. I am very nervous about construction costs there given the horrific events in Southern Cal.

So we're looking at a couple of projects there that we might push before, you know, before what's going on there, but I would expect us to add more to the pipeline, but those are kind of the ones that were pretty much got a shovel on-the-ground and then over, but those are all pretty much baked-in the cake. And in this case, they all happen to be JVs, but that could change.

Vince Tibone
Analyst at Green Street Advisors

No, that's really helpful. If I can maybe squee in one more clarification. When you say joint-ventures, like is Simon typically like a 10% or 20% partner in the non-retail portion or are you an 80% owner of the non-retail? Just trying to get a sense of appetite for non-retail.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah. Usually 50-50.

Vince Tibone
Analyst at Green Street Advisors

Yeah. Great. Thank you.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah. No problem. Thank you.

Operator

Next question is from Mike Mueller from J.P. Morgan. Please go-ahead.

Michael Mueller
Analyst at J.P. Morgan

Yeah, hi. I know you can't talk about the carrying pricing, but what's your sense as to how pricing on a comparable quality US assets would compare today? Do you think it'd be similar, stronger or weaker?

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

I missed the question. So can you say one more? I didn't understand. Can you reframe it?

Michael Mueller
Analyst at J.P. Morgan

Yes. So, yeah, I was saying on the Italy purchase, we know you can't talk about the cap-rate and the economics. But just curious as a hypothetical, if you have something comparable quality in the US, how would you imagine the pricing would compare to what you were in for in Italy? Do you think it would be stronger, higher cap-rate, lower cap-rate, something similar? Just curious of the thoughts there.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

It's a good question and I'm trying to think if I can answer it. I'll probably be artful. I would say, let me do a macro a macro so make a macro statement about it will usually macro orbit, even though properties are powerful and comparable, they'll tend to have higher cap rates than they would to the US and obviously, that calculus is important as to how we think about things.

Michael Mueller
Analyst at J.P. Morgan

Got it.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

How was that?

Michael Mueller
Analyst at J.P. Morgan

Okay. That was good. I think you pointed in the direction. There you go.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Okay.

Michael Mueller
Analyst at J.P. Morgan

I appreciate it. Thank you.

Operator

Next question is from Caitlin Burrows from Goldman Sachs. Please go ahead.

Caitlin Burrows
Analyst at The Goldman Sachs Group

Hi, everyone. Maybe just another question on kind of acquisitions or capital allocation generally, but it sounds like you were targeting the Caring acquisition for a while. And I imagine there are many other deals that you've assessed over the past couple of years.

So I was wondering if you could talk about the rest of the acquisition properties that might be out there that could be attractive to you and how you're balancing perhaps buying those versus your stock versus more redevelopment versus increasing the dividend, realizing that you're kind of doing a little bit of all of that?

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah. Listen, I would say,, that we're not -- there's no big deal that is on the drawing board. So we're still interested in few high-quality transactions. We're working on them. There's no guarantee. But I think since there's no big deal, we're going to do it all. And that's kind of my philosophy right now. So we may -- you know, if there were a big deal to do, you know, you can define big deal, but several billion dollars, billions of dollars, let's say, not then we might have to readjust our thinking.

But I think we're going to -- the mindset right now is we can do it all. Remember, we delevered and so we're still working on a couple you know, high-quality of transactions, but they're not like -- they're not going to tip the scales from a leverage or financial consequence or capacity point-of-view.

And as you know, development, redevelopment is a three-year product -- just you know, you build that -- you build a house, you buy a house, it's one thing you build it, you got three years to stroke the check every year. So for so or every month and unless you have a really nice contractor. So honestly, I think we're going to do it all, redevelop, where we don't mind buying our stock back.

And obviously, subject to-market conditions, we have the capacity to do so. And then I think redevelopment, development, you know we announced Nashville we're really excited about that land. It's in the growth corridor, it's on an interstate, a great, great ingress, egress visibility, terrific long-term 100 acre site. So we've got stuff going on in Asia on development that nothing really on new development in Europe.

So just a maybe a couple of things here or there, but we're also looking at expanding some of our better assets like a Woodberry or a Toronto Premium outlet or desert hills, etc. So that stuff is high-priority. So right now, you know, obviously things change. But right now, you know, we're planning to keep operating the same way we're operating. A little bit of everything.

Caitlin Burrows
Analyst at The Goldman Sachs Group

It sounds like a lot of opportunity. Great. Thanks.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Thank you.

Operator

Next question is from Haendel St. Juste from Mizuho. Please go-ahead.

Haendel St. Juste
Analyst at Mizuho Securities

Hey, there, good evening. Thanks for taking my question and good to hear you, David. My question, I guess, I wanted to go back a bit more to your plan on investing a bit more on your B assets here. I guess I'm curious how you're able to generate the 12% returns versus, I think the 8% to nines we've seen in more of your A projects here in the last couple of years? Is it the lower rent basis? Are you seeing, I guess, stronger -- any sense of stronger demand for space in those -- in any of those B malls and is 12% more of an anomaly or more than norm for these B mall investments you're making? Thanks.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah. I think the simple thing is right now we have little-to-no income. But when we always give you a number on return, we're always backing out existing income. But in this case, if you have an empty box or empty space, there's no existing income. And that really drives the kind of the incremental return. That's the biggest element of it.

And they're not all -- the 12%, I kind of referred to what we see as Smith Haven, but they're not all that way, but in a lot of cases, it's just empty space or an empty box and it's income, you know, basically there's no offset against it because there's no existing retailer or -- and then it's just the capital we have to put in to do it.

Haendel St. Juste
Analyst at Mizuho Securities

Got it. I appreciate that. And just thinking about that 12%, is that kind of reflective of the incremental risk-return or risk premium perhaps for some of these assets. Just curious how that perhaps would...

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

I think that's a good -- that's a -- that's a good point, but I would pre-characterize. So we -- let's say there's a -- and again, our B malls are probably some people than A malls, but let's just take a B mall and where we think the value very simplistically is an a cap, okay?

So we wouldn't want to invest in that asset at a cat return because that would be diluted to NAV. So part of what you're going to see and are seeing is we've we really look to improve that kind of portfolio is if we can't make any of the accretive investments, we won't do it. So we're better-off in that case, just managing the cash-flow to the best of our abilities.

So I understand your point, I kind of recharacterized it not because of risk, but it's not really risk-adjusted, it's more what's the value of the asset and will this add to the value of that asset? Follow what I'm saying?

Haendel St. Juste
Analyst at Mizuho Securities

Absolutely. And that's partly what I was getting at. So I appreciate that. Thank you.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Thanks.

Operator

Next question is from Linda Tsai from Jefferies. Please go-ahead.

Linda Tsai
Analyst at Jefferies & Co.

Yes, hi. Regarding the comment that you buy only really good stuff after caring, do you see more opportunities abroad or domestically?

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Yeah, now I would say mostly domestic, just because it's got to be really unique, which is what we saw the mall, which is rare. And again, as I mentioned earlier, I think I talked to them hard to remember, but it was definitely a couple of years pre-COVID. So I just think there's very few jewels like that in Europe that make fence with what we do in Europe, if you understand what I'm saying.

So we're not going to buy a mall in Europe, just to have one mall in Europe. So the outlet business, we view it a little differently. So I would say by -- because of that, that would be really unique and more domestic, let's say more domestic.

Linda Tsai
Analyst at Jefferies & Co.

Thanks. And then how are you feeling about the consumer right now and high versus low-end US versus Europe?

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Well, I think they're very cautious in Europe and you know the US consumer is still I'm still nervous about the lower-end consumer. The better to the upper-income, you know, I feel pretty confident about that. A lot of whipsaws going on left and right, so it's very hard to predict, but generally still concerned about the lower-end pretty bullish on the upper to high-end consumer.

Linda Tsai
Analyst at Jefferies & Co.

Thank you.

Operator

Next question is from Ronald Kamdem from Morgan Stanley. Please go-ahead.

Ronald Kamdem
Analyst at Morgan Stanley

Great. Hey, if we could just go back to sort of the strong performance last year. Wondering if you could dig in a little bit between sort of the outlets and the mall business, any sort of call-out what drove the performance? Is it traffic? Is it higher -- higher-ticket prices, so on and so forth? And the second part of the question is really, are you seeing any impact from the strong dollar on tourist centers? Thanks.

Brian J. McDade
Executive Vice President and Chief Financial Officer at Simon Property Group

So, Ron, it's Brian. There wasn't a big bifurcation kind of between asset classes. I think all three platforms performed exceedingly well. You did see the outlet in the mills, which generally skew a little bit more value-oriented to outperform a little bit into the fourth quarter.

It wasn't really kind of an anomaly, just kind of expected performance. I mean, we've not seen any real-time impact yet to the tourist oriented centers, but we're February 4. So still early in the year, but we would expect to see or if we continue to see dollar strength can see some impact over the course of the year, certainly in our translations of our foreign earnings.

Ronald Kamdem
Analyst at Morgan Stanley

Thanks so much.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

And I would just say, when we talk about reenergizing on assets. Don't just think malls, outlets, big a few of our mills. So it's a wide portfolio focus, not just when people talk B, they always think malls, but you know, for us, it's you know it's across our entire domestic portfolio.

Ronald Kamdem
Analyst at Morgan Stanley

Okay. Helpful. Thank you.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Thank you.

Operator

This concludes the question-and-answer session. I'd like to turn the floor back to David Simon for any closing comments.

David Simon
Chairman of the Board, Chief Executive Officer and President at Simon Property Group

Okay. Thank you, everybody, and look-forward to talking in the future. Thank you.

Operator

[Speech Overlap] This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

Corporate Executives
  • Thomas Ward
    Senior Vice President-Investor Relations
  • David Simon
    Chairman of the Board, Chief Executive Officer and President
  • Brian J. McDade
    Executive Vice President and Chief Financial Officer
Analysts

Alpha Street Logo

Transcript Sections