Simon Property Group Q2 2021 Earnings Call Transcript

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Provided by Quartr
August 2, 2021

Key Takeaways

  • Q2 FFO came in at $3.24 per share and Simon raised full-year FFO guidance by $1 to a range of $10.70–$10.80 per share, reflecting 17–19% growth.
  • Mall and outlet occupancy climbed to 91.8% (up 100 bps from Q1) as Simon signed nearly 1,400 leases covering 5.2 million square feet in Q2.
  • June retail sales at Simon properties matched June 2019 levels and were up ~80% year-over-year, with several U.S. regions surpassing pre-pandemic volumes.
  • The Q3 dividend was increased to $1.50 per share, marking a 7.1% sequential and 15.4% year-over-year increase, and Simon returned to its historical dividend declaration cadence.
  • International operations faced government closures and capacity restrictions that cost approximately $0.06 per share in Q2, underscoring lingering pandemic headwinds abroad.
AI Generated. May Contain Errors.
Earnings Conference Call
Simon Property Group Q2 2021
00:00 / 00:00

There are 17 speakers on the call.

Operator

Thank you for standing by, and welcome to the Q2 2021 Simon Property Group Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Senior Vice President, Investor Relations, Tom Ward. You may begin.

Speaker 1

Thank you, Latif, and thank you all for joining us this evening. Presenting on today's call is David Simon, Chairman, Chief Executive Officer and President. Also on the call are Brian McDade, Chief Financial Officer and Adam Roy, Chief Accounting Officer. Before we begin, 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, Actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward looking statements.

Speaker 1

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 in the press release and the supplemental information in today's 4 8 ks filing. Both the press release And the supplemental information are available on our IR website at investors. Simon.com. Please note, Our 8 ks filing is still in process with the SEC.

Speaker 1

However, it has not yet been accepted tonight. In the meantime, as mentioned previously, For our prepared remarks, I'm pleased to introduce David Simon.

Speaker 2

Good evening. I'm pleased to report our business is solid and improving. Demand for our space and our well located properties is increasing. I'll turn to some highlights. Our profitability And cash flow has significantly increased.

Speaker 2

2nd quarter funds from operations were 1 point $2,000,000,000 or $3.24 per share. Our domestic operations had an excellent quarter. Our international operations continue to be affected by governmental closure orders and Capacity restrictions, which cost us roughly $0.06 per share for this quarter compared to our expectations Due to the equivalent of a 2.5 month of closures, as we said in the press release, Our quarter results included a non cash gain of $118,000,000 Or $0.32 per share from the reversal of a deferred tax liability at Klepierre. We generated over $1,000,000,000 in cash from operations in the quarter, which was 125,000,000 dollars more than the Q1. And additionally, compared to the Q2 of last year, Our cash flow from operations was breakeven due to the lockdown.

Speaker 2

Domestic international property NOI combined Increased 16.6 percent year over year for the quarter and 2.8% for the first half of the year. Remember, the Q1 of 2020 was relatively unaffected by the COVID-nineteen pandemic. These growth rates do not include any contribution from the Taubman portfolio or lease settlement income. Malls and outlets occupancy at the end of the second quarter was 91.8%, an increase of 100 basis points. Compared to the Q1, we continue to see demand for space across our portfolio from healthy local, regional And national tenants, entrepreneurs, restaurant tours and mixed use demand ever so increasing day by day.

Speaker 2

Our team is active in signing leases with new and exciting tenants. Average base minimum rent was $50.03 our average base rents was impacted by the initial lower base rents we agreed to And addressing certain tenant COVID negotiations in exchange for lower sales breakpoints, The variable rents that were recognized in the first half of the year were included, it would add approximately $5 Per foot to our average base minimum rent, leasing spreads declined again due to mix of deals That are now included as well as the activity that had fallen out of the spread given its rolling 12 month Nature and Metric new leasing activity that has affected the spread include large footprint entertainment, Fitness and large scale retailers, these boxes, big box deals reduced our opening rate as they're all included In our spread metric, as a reminder, the opening rate included in our spread calculation Does not include any estimates for percentage rent based income based on sales, as I mentioned just Leasing activity accelerated in the quarter. We signed nearly 1400 leases For approximately 5,200,000 square feet and have a significant number of leases in our pipeline, Through the 1st 6 months, we signed 2,500 leases for over 900 I'm sorry, 9,500,000 square feet.

Speaker 2

Our team executed leases for 3,000,000 more square feet or over approximately 800 more deals Compared to the 1st 6 months this year, as well as I'm sorry, compared to the 1st 6 months 2019, we have completed nearly 90% of our expiring leases for 2021. We recently had deal committee, and what I'm told by My leasing folks is that, that was the most active deal committee that they've had in several Years now. Retail sales continued to increase. Total sales for the month of June were equal to June 2019 and up 80% compared to last year and were approximately 5% Higher than May sales, if you exclude 2 well known tenants, our mall sales were up 8% more Then compared to June of 2019, multiple regions in the U. S.

Speaker 2

Recorded higher sales volume In June and for the Q2 compared to our 2019 levels, we're active in redevelopment And new development, we opened West Midlands Designer Outlet and we started construction in the Western Paris suburb For our 3rd outlet in France, the end of the quarter, new development and redevelopment was underway across all our platforms For our share of $850,000,000 our retail investments posted exceptional results. All of our global brands within Spark Group outperformed their budget in the quarter on sales, gross margin and EBITDA, Led by Forever 21 and Aeropostale, Spark's newest brand Eddie Bauer also outperformed our initial Expectations. We're also very pleased with JCPenney results. They continue to outperform their plan. Their liquidity position is growing now $1,400,000,000 and they do not have any outstanding Balance on their line of credit, Penny will launch several private national brands later this year As well as their new beauty initiative, Taubman Realty Group is operating their 2021 budget At a level above that and above our underwriting and their portfolio our portfolio shows resilience Sales are quickly returning to pre pandemic levels, year to date through June, retail sales We've been very active in the capital markets.

Speaker 2

We refinanced 13 mortgages in the first half of the year for A total of $2,200,000,000 in total, our share of which is $1,300,000,000 At an average interest rate of 2.9%, our liquidity is more than 8,800,000,000 Consisting of $1,000,000,000 consisting of $6,900,000,000 available on our credit facility And $1,900,000,000 of cash, including our share of JV cash. And again, our liquidity is net of $500,000,000 of U. S. Commercial paper that's outstanding at quarter end. Dividend, we paid $1.40 per share of dividend in cash on July 23 for the Q2.

Speaker 2

That was a 7.7% increase sequentially and year over year. Today, we announced our 3rd quarter dividend of $1.50 per share in cash, which is an increase of 7.1% sequentially and 15.4% 15.4% year over year. The dividend is payable September 30. You will know that going forward, We are returning to our historical cadence of declaring dividends as we announce our quarterly earnings. Now guidance, given our results for the first half of the year as well as our view for the remainder of 2021, We are increasing our full year 2021 FFO guidance range from $9.70 to $9.80 per share to $10.70 to $10.80 per share.

Speaker 2

This is an increase of $1 per share at the midpoint and the range represents Approximately 17% to 19% growth compared to 2020 results. Before we open it up to Q and A, I wanted to provide some additional perspective. First, we expect to generate approximately $4,000,000,000 in FFO this year. That will be approximately 25% increase compared to last year and just 5% below Our 2019 number to be just 5% below 2019, given all that we've endured over the last 15, 16 months, including significant restrictive governmental orders that forced us to shut down, Unlike many other establishment, is a testament to our portfolio and a real testament to the Simon team and people. 2nd, we expect to distribute more than $2,000,000,000 in dividends this year.

Speaker 2

Keep in mind, we did not suspend our dividend At any point during the pandemic, and in fact, we have now increased our dividend twice already this year. Now just a point on valuation, and I tend to never really talk about it, but I felt it was appropriate today. Our valuation continues to be well below our historical averages When it comes to multiple FFO multiples compared to other retail REITs, retailers and the S and P 500 And our dividend yield is higher than the S and P 500 by more than 2 50 basis points, treasuries by 3.25 basis points and the REIT industry by 150 basis points. And as I mentioned to you, our dividend is growing. Our company has a diverse product offering that possesses many, many multiple drivers of earnings growth, accretive capital investment opportunities and the balance sheet to support our growth, we are increasing our performance, profitability, Cash flow and return to our shareholders and we're ready for questions.

Operator

Thank you. Our first question comes from the line of Steve Sakwa of Evercore ISI. Your line is open.

Speaker 3

Thanks. Good afternoon, David.

Speaker 4

I guess I wanted

Speaker 3

to just start on the occupancy trend, which was up pretty nicely from 1Q to 2Q. And you talked about the leasing activity that you had in the quarter in the pipeline. Could you just maybe share with us what your expectations are for By the end of this year and what's sort of embedded in the guidance?

Speaker 2

Well, it's the guidance It's affected by the continuing uptrend. We expect our occupancy by year end to Increase from the levels that we have right now. I don't have a number that I'm going to give to you specifically. But As I mentioned to you, Steve, talking to my heads of leasing, I mean, we are Maybe this is an overstatement. We're tickled pink by the demand by the new retailers And tenants that are surfacing the many, many opportunities that we have With restaurants, with mixed use developments, And I mentioned to you, our deal committee had more deals than it's had in a few years.

Speaker 2

So Look, we still have a hole to dig out of because of the bankruptcies that we had to confront with the pandemic. But I'm very pleased with the activity, the mojo that we have in leasing, The work that our personnel are doing there, the creativity, it's pretty encouraging.

Speaker 3

Okay. And maybe just as a follow-up, just on the leasing commentary. I know that you guys had to make some accommodations To the retailers and you lowered the base rent and took more percentage rent. Given that sales seem to be coming back very quickly, Do you sense that, that dynamic is changing at all as you're having these current discussions about future leasing? Or do you still anticipate Have kind of lower base and take more upside going forward?

Speaker 2

Look, it's tenant by tenant. The strategy we adopted in the height of the pandemic is playing out Better than we could have expected. We made the right move. We got the renewals done. We accommodated the vast majority of retailers assuming they were reasonable in their approach.

Speaker 2

We got the job done. We kept our properties functioning. We bet on the rebound and we're seeing the benefits of that. And As I look back, I'm not certain I would change a lot. And the reality is, There's always going to be a few a handful of situations where we'll bet on the come, Bet on retailers because we have confidence in our properties.

Speaker 2

We have confidence in the retailers that we're doing business with. And I think physical retail, when I listen to the pundits and they're throwing it out they're throwing the baby With the bathwater, read my lips, physical retail is here to stay And people really like to shop in the physical world. So don't believe everything you hear on TV. We've got the evidence.

Speaker 3

That's it for me. Thanks.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Alexander Goldfarb of Piper Sandler. Please go ahead.

Speaker 5

Hey, good afternoon, David. And hope, I guess you guys have had a really good not I guess, you guys have had a really good quarter. Just amazing to see guidance up by a buck. Continuing on Steve's question there, amazing on the dividend rebound, amazing on The guidance on the leasing activity you guys talked about and everything is good. But when you think about people Pulling out the negative and believe it or not, David, people do look at some things in negative limelight, they'll see negative 22% re leasing spreads And that negative spread is widening.

Speaker 5

I understand that you did deals to get the company through makes sense. But from an expectation standpoint, what would you think the cadence is over the next few quarters of this spread? And how do we sort of Relate to that versus the cash flow growth and everything else that's going on because clearly there's a disconnect between your cash flow recovery and this negative spread metric.

Speaker 2

Yes. Look, I Alex, Stats don't mean as much to me as they do to you because I look at cash flow growth, because there's a lot that goes into cash Flow growth, a lot more than spreads. Now the sole reason that the spread is down to 22% It's because of mix and the COVID deals that we did. The mix is that we The spread probably was higher than because we had a lot of boxes that rolled out That were low rents. And so we got the benefit of that.

Speaker 2

And now as And those are out of our 12 month numbers. And now the kind of the new leasing that we're doing is in it. And That's the sole thing. So I would encourage our investors that know what we're all about To understand that it's a mix, if I do a deal with Dick's or An entertainment box and they paid $15 a foot, but the expiration of that box was 15 months ago with $3 a foot, I still may have made a $15 spread, but because it was in Our rollout 15 months ago, you don't see it. It's not space by space.

Speaker 2

If I did space by space, the trend would not be the percentage would not be anywhere near that. So do you understand What I just explained, remember, we had a lot of boxes that were pre COVID at low rents, Well, we didn't do box leasing for the last 12, 14 months because of the pandemic. So that's the sole reason. You follow what I'm saying, right, Alex?

Speaker 5

Yes, I do. I wasn't about to volunteer, Tom, Rehash for a space by space, but I do understand what you're saying.

Speaker 2

This is not a space by space, but the reality is if I had Boxes that were that space that I got back that was at low numbers, but they were 15 months ago. Those Closings is gone. So that really jerks up the number. And then I have the new lease That's at a low number that jerks it down. But if you really compare it over a longer period of time, we've got a positive spread.

Speaker 2

Lalami?

Speaker 5

Yes, it makes total sense. The next topic, David, obviously arises.

Speaker 2

It should make more than sense. It's the math.

Speaker 5

No, I can see the math as evidenced in the earnings growth, the cash flow growth. You've explained it well so that when understanding this, That explanation that it's not based on space by space makes it crystal clear what's going on. The next question is on the rising of COVID, Delta, whatever other variants there are out there, obviously, Fact of life, but you're seeing tremendous leasing demand, restaurant demand, etcetera. Your malls are and outlets are throughout the country. Is it your view and what your managers mall managers are saying and tenants are saying is that most people just accept COVID It's part of life and therefore it doesn't interfere with their shopping or their restaurants or their activity or is there a concern that People may start to pull back from some of the increasing activity that we've seen this

Speaker 2

year. Well, it's a very good question. I'm only going to give you my personal opinion, Which could be wrong, but it's an opinion. So I guess technically, it shouldn't be wrong. But I would say this, I think the most important this is factual and I actually checked it.

Speaker 2

So As you know, Delta there are Delta hotspots. We actually have malls in some of these hotspots. So the land of the Ozarks is in Springfield, Missouri. You only know that through the Netflix show, right, the Ozarks, Because you haven't been there, but I've been there, and it's a wonderful place. But I checked, Have we seen in our Battlefield Mall, which is in Springfield, Missouri, Have we seen an uptick in COVID cases at the mall?

Speaker 2

And we get the report from all the retailers and our staff. And the reality is we have it. The mall is safe, okay? So even though we're starting to see counties Talk about indoors. There's no science about the mall.

Speaker 2

I underline that. We've been mistreated in this whole 18 month ordeal, but it is what it is. I personally think now going back to your question, And we I've checked it like in Florida where there's some upticks. We have not seen in an enclosed mall An uptick in COVID cases for the people that are in the mall, the staff, whether it's a retailer or our management team. Period, end of story.

Speaker 2

No question about that. So I personally think that people are Just going to deal with Delta. I'm hopeful that people will get vaccinated. We're not going to mandate vaccines. We're going to encourage them.

Speaker 2

And I think we've got to Keep as being safe as possible going on with our life and we need to mask up. We're going to mask up, and I think the consumer and the folks are have all just kind of Dealt with it and are moving forward in that environment right now. So I'm hopeful that as a country, We don't get into these lockdowns. They have produced I studied Sweden. I studied France.

Speaker 2

COVID reverts to the mean. Sweden did not lock down, France did. And if you look at the chart on COVID cases, It all reverts to the mean, lockdown, no lockdown. So let us do our business, mask up if you need to, The mall is safe. Next question.

Speaker 5

Thank you, David.

Operator

Thank you. Our next question comes from Rich Hill of Morgan Stanley, your question please.

Speaker 6

Hey, good afternoon, David. I want to just focus on maybe just some of the numbers and specifically the If I'm looking at the numbers right, you had a pretty healthy increase in that line item, which obviously Talmad along with the retailers. I think it went to around $348,500,000 versus $15,000,000 the last quarter Despite depreciation and amortization looking like it's approximately flat year over year. So that suggests to me something pretty healthy is Happening in those line items. I was hoping you could maybe just give us a little bit more transparency in what you're seeing there and what's driving that beyond what you said in the prepared remarks.

Speaker 2

Well, I mean, we're always transparent. That will be in our queue. But we have our Klepierre deferred tax Gain running through that, we have our retail investments running through that are the 2 major Pieces of that increase and then obviously positive operations in all of our joint venture properties. And that's really it. Taubman, because we've had this that runs through that as well, But we also have increased depreciation and amortization associated with it.

Speaker 2

So that's a kind of a not overly material in that big increase. Fellas, what else do we want to say? That's it? Okay. Fellas agreed with my assessment.

Speaker 6

Thank you. I'm sure I'll follow-up offline with Brian and Tom on that. I do want to come back to My words, not yours, soft guidance on core NOI. I think you've said in the past, it was maybe going to be 4 to 5, Closer to 5%, if I'm reading the transcript from last quarter correctly. You obviously just had a really big quarter.

Speaker 6

How do you feel about that now? And Do you see potential for upside from that 5%?

Speaker 2

Yes, we should outperform that.

Speaker 6

Okay. That's my two questions. So, I will get back in the queue. Thanks, David.

Speaker 2

Thank you.

Operator

Our next question comes from Michael Bilerman of Citi. Please go ahead.

Speaker 7

Great. Just 2 quick ones. One quick one, maybe one a little bit longer. The first one, Just on the dollar increase, can you just break that down into just some major buckets, the buck increase, the guidance about $380,000,000 I would assume part of it is $0.32 the deferred tax liability that you booked this quarter, which leaves another $0.68 On accounted for, maybe if you can just bucket it into like maybe retailer investments, core and other would be helpful.

Speaker 2

You're right. You're right. $0.32 of that is because of the deferred tax, and then $0.68 Plus is from just core plus retail. But we're not going to break out That which is which, but the good news is we've got our core beating Our initial budget and retail the same we're in the same spot.

Speaker 7

Yes, because your original retailer investment was like $0.15 to $0.20 It would appear that you may have blown through that just in this quarter. So that's why I was

Speaker 2

It's entirely a fair and legitimate Question and so there's no qualms on that. It's just we don't really we're not breaking out the beat The increase, I should say, other than the $0.32 and which is right, and then the other 68, I hope it will be plus and that will be as retail and core.

Speaker 7

Right. It's just going to start turning the line.

Speaker 2

I mean, that's the retailer multiples, maybe retail is core. I don't what's core or what's non core. Okay.

Speaker 7

That's a longer discussion. The second question, David, given your perspective now as a obviously, you've been a landlord forever, But you're increasingly now getting your hands dirty at being a retailer. I'm curious what you're seeing from the retailers that you own in sort of dealing within This environment and turning it around relative to what you are as a landlord, right, because I think you said you're tickled pink. If you're sitting as a retailer, that must be a different A description that you would use, so maybe you can talk a little bit about, what you're doing on the retailer side To bring people into the assets, what type of promotions are you trying to lure people to bricks and mortar and just the whole omnichannel world with the retailers you own. Just trying to understand that relative to your time as a landlord.

Speaker 2

Well, That's a you're right. It's a long that's a long If I did that question justice, it would be a long answer. So let me just say this, and this is really important. The retailers that we bought, if we didn't buy them, they would be gone. So I'm most proud, forget about the numbers and what it's meant for us financially, but we're most proud because we We kept companies alive that otherwise would be dead, buried and liquidated.

Speaker 2

And what we found out is, you know what, If we just focus on the business, focus on cash flow, focus on The consumer, we could stabilize these business, have patient money, patient not worried about comp From 1 quarter to the next, we could turn those around. And I'm most proud because I should know, maybe Brian knows, but Our Spark operations employ thousands of people and then when you add Penny, you've got Well over 50,000, 60,000 people. So don't underestimate what we've done. These were companies that were frankly roadkill And we saved them. And for that, I'm very, very thankful for.

Speaker 2

So that's And then I'd say, Michael, generally, and I can get into this in more detail. It's just Too much to tell you now. Yes. I'd say 2 things. 1 is the store is Credit, if you talk to the retailers that run these businesses, and in our case in particular, because Most of these companies didn't have the capital to invest in the Internet and the omnichannel.

Speaker 2

We're making it at the store level, Okay. So these are really turned into be good physical store operators. Now Eddie Bauer is more sophisticated on the e commerce than some of the other ones that we got when we bought them. But the store is a really, really important A component that gets in today's world, for what it is what it is, gets overlooked. And I'd say, We've also had a great partner in ABG that adds a lot to the marketing And know how about sourcing that was very important to what we have.

Speaker 2

And then Brookfield Has been a terrific partner as well and add a lot of value. They're in some deals. They've been converted in others, but they've been like us. What do we do that's right for the business? How do we keep these companies alive and prosper, level headed, You know, the decisions, all the rest of the stuff.

Speaker 2

So, omni channel clearly is very important to the future, But these companies are basically surviving and prospering because of their physical footprint, not because of e commerce.

Speaker 7

Right. And I'd say if I have a vote, I know you probably wouldn't give me a vote, but on the retailer versus core Simon earnings, I do think there's a difference? The market can describe what multiple they want. You have leases and contracts, retailers on the other hand of just a different Business model?

Speaker 2

Traditionally, you're right in that, but if you look at where the retailer multiples are Compared to ours, you would argue the reverse.

Speaker 7

I said that's why I said we want I don't want to the market is going to tell us where, but at least having all the details of The components, I think, is just a very helpful pieces of information that The Street can then and maybe we can get into an argument about How things should be valued, but not having the individual pieces in a clear and concise way, I don't think allow us to have that conversation. It becomes a little bit more adversarial.

Speaker 2

Well, we got it. We understand the issue. But at the end of the day, we'll see The level of materiality to it, and we'll see if it makes sense. We've got partners in there as well. But I don't think well, let's the market is the market.

Speaker 2

I have to respect it. So We hear what you're saying.

Speaker 7

Okay. I appreciate the time, David.

Speaker 2

Thank you.

Speaker 7

Have a good one.

Speaker 5

Thank you.

Operator

Our next question comes from Caitlin Burrows of Goldman Sachs. Your question please.

Speaker 8

Hi, everyone. I was just wondering maybe if we could talk a little bit The conversations you're having with retailers, I think in the past and even last quarter, it sounded like there were still retailers that were maybe giving you a hard time about rent payment or rent negotiations. Wondering if you can give an update on how those conversations with the retailers are going, and also whether that is impacting the lease termination fees?

Speaker 2

I would say we're really down to a couple of folks and it's really Caitlin, way, way down. I mean, everybody's lived up to their basically COVID deal. I would say right now, it's other than 1 or 2 folks, it's really kind of business as usual and how do we do business better, How do we grow our business? How do we do things more strategically? So I think I'm hopeful that, that's That whole unfortunate, it was tough for us.

Speaker 2

It was tough for them. We were all dealing with unprecedented secrets of events. I think it's all behind us. Our collection rates are in the back to normal. And yes, we've got 2 or 3 folks that are still out there, but If we if they stay out there, it is what it is.

Speaker 2

And we can't We're moving forward. So it's all pretty much behind us, assuming there's No, nothing that we had to deal with like we did last year.

Speaker 8

Got it. Okay. And then maybe just a quick one on the other income, both the lease settlement income was up decently in quarter and also the bucket for other income. So I was just wondering if you could give some detail on those two line items.

Speaker 2

Yes. I remember lease settlement income was up a few $1,000,000 not much, maybe a couple of cents. And We sold 1 residential property at a gain and we also had which is We had a significant increase in our Simon Brand Venture business, which is that Probably the bigger grower of that number. Yes. Absolutely, Caitlin.

Speaker 2

This is Brian. We saw a pretty Thanks, Lynn. And Simon Brands mentioned our gift card business and some of our kind of mall food operations, which obviously in the Q2 of last year were non existent.

Speaker 8

Got it. Okay, thanks.

Operator

Thank you. Our next question comes from Derek Johnston of Deutsche Bank. Your line is open.

Speaker 9

Hi, everybody. Good evening. What do you need to see in order to green light additional transformational mixed use projects, Especially the Taubman assets, which we think make a lot of sense. I mean, clearly, Northgate never skipped a beat. And now, Phipps Plaza really looks like it's back on track.

Speaker 9

Maybe I missed it earlier, David, but I recall the office component being temporarily shelved. But what do you need to see to ramp additional transformational type projects? And is there a laddered Development program in place or any material ongoing in process entitlement requests you can share?

Speaker 2

Sure. You're right about 5th. We're basically all systems go there. We expect to finish everything by the end of 2022, which would be the new Class A office, Nobu Hotel, Lifetime Athletics. So it's all going back.

Speaker 2

You're right, we did shut it down during COVID. We commenced we restarted this, I don't know, 2, 3 months ago. We weatherproofed some of the stuff earlier, Well, we really are finishing the project. So that's that'll be really I'm really excited about that. So hopefully, we'll be able to show you that and be something really proud of.

Speaker 2

And I would say we're really kind of we took a hiatus of 12 months, More or less, Brian, right, 12, 14 months. So we're back at it. I think I mentioned last call, we're probably, In some cases, decreasing the amount of

Speaker 10

maybe new

Speaker 2

retail space, But we're back at it and it's more mixed use than ever. The demand on the mixed use front has been Really, really nice to see. And just to name a few that were in the permitting process would be Brea in Orange County. We've got Stoneridge in Northern California area. Just to name just to get the permitting process going restarted, some of those things we have to Kind of start again because the plan is different, but The idea to redevelop a lot of them are the old department store boxes that we got back Or that we ended up buying, we're going.

Speaker 2

The plans may be a little Less grandiose, so to speak, but it's very active on that front Across the board. So, look for more and more of our pipeline to increase As we go through the vetting process. And I think with the Taubman portfolio, you're right, there's a lot to do There, they didn't they I keep saying they, but we don't have a lot of empty Box is there. So that was so there's not like the plethora of opportunities that you might otherwise think, But there are some and we're working those as well. And it's great real estate, great location.

Speaker 2

I think I mentioned last call, I mean, I do think not that there's really a silver lining in any of this, but I do think Our properties, both by the communities and maybe The general movement there, the suburbs are especially in markets That we're in are going to be really appreciated And I think we're going to be the center of

Speaker 9

activity. Okay, great. Thank you. And I guess just my follow-up will be a quick follow-up to this question. Is the 13 storey Class A office building, Is Lifetime co work an anchor tenant there?

Speaker 9

Did you sign them? Or have you pre leased any of this space that gave you confidence to move ahead? Or are you just moving ahead because

Speaker 2

Let me be clear. So Lifetime is its own separate building. It's actually built on top of a world class food hall that we're doing with C3. And inside Lifetime Athletic, they will have their own co working. The office building It's on its own.

Speaker 2

It's not there's no leasing the lifetime on that. It's 13 stories. We're building it spec, but we just signed our first 90,000 square foot lease. So the short answer is yes, we are going.

Speaker 7

Thank you.

Speaker 2

Sure.

Operator

Thank you. Our next question comes from Craig Schmidt of Bank of America. Please go ahead.

Speaker 11

Thank Looking at the guidance for 2021, you'll have recovered a half of the loss from your Previous peak on FFO per share. I'm wondering as you work on to create the income to get you back to the second half, Is that going to be harder than the first half or could that be easier?

Speaker 2

Just quarter over quarter? I'm just thinking about I didn't really I don't think anybody understood your connection is not that good, Craig. So maybe can you restate it, please?

Speaker 11

Sorry, can you hear me now? Yes. Okay. Your guidance for 2021 Already brings you halfway back to your peak FFO per share. Thinking about the second half, Is that going to be harder to recover or easier?

Speaker 2

Well, if you go quarter over quarter, I would just say and I'll let Brian and Adam weigh in, but We had the brunt of COVID abatements and relief defaults in Q2 and Q3, if I remember correctly. So The comparison to Q3 of 2021 compared to 2020 should be a pretty big gap. For by Q4, we had dealt with most of this stuff. So If that's your question, I'm not sure I really maybe comprehend it completely. But If that's your question, I think hopefully that answers it.

Speaker 11

Great. And then just, do you see foresee any changes in the REIT rules that might allow you Grow your retail and some of your other businesses beyond previous limitations.

Speaker 2

Well, that's hard to know, Craig. I'm hopeful. I mean, we're there are limitations. You're right, 100% right. There are limitations, and I'm hopeful that the folks That do legislate this stuff will understand the benefit that we've provided to basically Working families because we've saved these retailers.

Speaker 2

So yes, there are rules that make it complicated. They should be less. Remember, our retail investments In a taxable REIT subsidiary, if you look at our P and L, you'll see a big tax expense, correct, Ladies and gentlemen, that's associated with the fact that our TRS is taxable and we're paying The corporate tax rate at its full level. So and then when you look at the hopefully, The benefit of what we've done for these companies that otherwise would May not exist, frankly, that the folks That right legislation will see that this is really an arcane rule that was around a long time ago, And there's a real benefit to trying to keep retailers and others alive To try and create employment and all the good stuff that they do in the community. So I am hopeful, But there's no certainty on that.

Speaker 11

Understood. Thanks.

Speaker 7

Thank you, Craig.

Operator

Thank you. Our next question comes from Floris Van Dischamps of Compass Point. Your line is open.

Speaker 12

Thanks for taking my question. David, I have a feeling of sort of deja vu. We've seen this picture before Following the great financial crisis, obviously, things are different, of course, but it seems like We're reliving those times a bit. Maybe if you can my question to you is regarding tenant sales. Again, the key Lifebloods to your malls and the key to the obviously to the retailer profitability too.

Speaker 12

Very encouraged by your statement of retail sales in June equaling in your portfolio equaling 2019 levels and up 5% from May. Maybe if you can give some more breakdown in that, Particularly, as it comes out of the Q1 and also did I hear you correct? Did you say That Taubman sales are 13% ahead of 2019 levels?

Speaker 2

Correct.

Speaker 7

Yes.

Speaker 13

Does that

Speaker 2

I mean, it's a good number. I mean, Look, I do think we all deal, for us in a very tough predict it's really hard to be To make any predictions, but I think what it should tell all of us is that And I said it a little bit earlier, I mean, physical shopping It is people like to physically shop, okay. We are By no stretch of the imagination, hitting on all cylinders. We still have tourist centers that don't have tourists other than domestic. We have parts of the region that were slower to open up, I.

Speaker 2

E, California than others. And I just think the most important point is that people like physical shopping. And I mean, listen, you hear it all the time and I'm sure you get your clients ask you, well, nobody shops Physically anymore and you try to defend it and or you say, yes, but what about this, what about that? I think we're just We're showing that it matters to the consumer and to these communities and hopefully That will continue. And it is I will say this, maybe getting to your question, it is across the board.

Speaker 2

So it's yes, it's the luxury retailers, but it's also Aeropostale, which The AUM is, I won't tell you, I'm not allowed I don't know if I'm allowed to tell you, but the AUM is lower than what it might be for a luxury retailer, okay? So it's a Forever 2021, which has a low AUM. So I think that's just encouraging. Hopefully, the trend will continue, but I think the consumer likes the idea They can go to a physical shopping place.

Speaker 12

Great. And if I can follow-up, I guess, Wanted to you talk about the fact that your lease spreads are not they're not space for space, like for like. I wonder if you had that. And also, what is the impact if you have if your average sales Get to 2019 levels, what's the impact on the effective rent that you would be getting relative to the reported rents that you've talked about?

Speaker 2

Well, I think the easiest way to do that, I mean, it's complicated Number because you got to go retailer by retailer. We did for the 1st 6 months and our estimate of what our Base rent would be based upon kind of we got the benefit There's $5 more base rent had we not lowered our break points due to the COVID relief. That gives you an indication of kind of an interesting stat, if that's So maybe it's of interest to you. So I don't Yes. So I can't really give you a number off the top of my head.

Speaker 2

It would just be a guess, and I really don't want to do that On what it might be. And then again on the spreads, it's not space by space. A lot of people And I know the burdens on you and the analytic community, But I really encourage you to very few people do it the way we do it. Most people do it Space by space, some people also include their estimate of if they have a base rent of X and they They include that in their spreads. We just it's all in and all out.

Speaker 2

Mix matters because of these boxes I explained to you. And you know what, it will manifest itself in the cash flow. And the big cash flow growth story that we have going forward is sales growth And put sales growth and occupancy growth and SBV growth, getting that back to normal. That's the big story. And then lease so the spreads

Speaker 1

Yes, I could do a

Speaker 2

bunch of boxes. The spreads could look not as good as you have looked historically, but the reality is my Cash flow went up because that was vacant space and it's already out of the spread calculation. So focus on cash flow growth is the bottom line.

Speaker 12

Thanks, David. Appreciate it.

Speaker 7

Sure.

Operator

Thank you. Our next question comes from Mike Mueller of JPMorgan. Your line is open.

Speaker 7

Hi. So Q2 looks like it was about $292,000,000 without the reversal. And if you look at the $10.75 guidance, it implies about a $2.50 a quarter average For the balance of the year, what was the level of income that won't recur in the

Speaker 2

back sorry, what was

Speaker 7

the level of income In 2Q that won't recur going forward.

Speaker 2

Say that one more time, Michael. Can you go through

Speaker 1

that question again, please?

Speaker 2

Yes. The only thing that the only let me say it this way. The only thing that's not going to recur is the Klepierre deferred tax gain. I mean, again, I can't tell you exactly what retail sales are going to be retailer sales. I can't tell you what our retail investments is going to be.

Speaker 2

So there's but the only thing that's kind of nonrecurring, we always have certain nonrecurring things Every year, lease settlement income, sale of a income producing property, these things always kind of ebb and flow. But the only thing that is not going to recur is the deferred tax. That's a one time gain, Clearly articulated in our press release of $0.32

Speaker 7

What about prior period collections? Were there any in there That were significant?

Speaker 2

No, they wouldn't come through the P and L either. We saw no recovery, Michael. Yes.

Speaker 7

Got it. Okay. Thank you.

Speaker 2

Thanks.

Operator

Thank you. Our next question comes from Vince Tibone of Green Street. Your line is open.

Speaker 10

Hi, good afternoon.

Speaker 14

So it seems clear that variable rent Is growing in the portfolio, like I'm just could you help frame how much this is shifting? Like for the leases you're negotiating today, like what is the split between contractual rent And the expected variable rent component and how is that different from before the pandemic?

Speaker 2

Well, look, I think the answer the simple way to say that is that If we are willing to bet in some cases on the Prospect of our property and our retailer. And to the extent That they are cautious because of what they had to deal with as well. We're willing to accept the lower base rent In some cases, if we get an artificial upside in other cases. And it's not Anywhere near the majority, it's only dealing with certain cases, certain lease rollovers. And again, Those lease rollovers happen, let's say, on average, We had 12% a year that rolls over.

Speaker 2

Now last year, we had more Only because we dealt with bankruptcies, which in theory, When you're in a bankruptcy, all of your leases roll over because you have the right to reject leases. So we did a little bit more last year With some of the brands that went through bankruptcy because it was in the height of the pandemic And they were cautious with their plan, but we made artificially low breakpoints to make Some of the income back up at the sales hit. I would say going forward, we're pretty much back to the normal Way to do it, so which is trying to get the appropriate base rent and a natural break Over that to generate percentage rent. Got it. And I will say this, We are still really important.

Speaker 2

We're still not we used to have big, big overage rent numbers From our outlet portfolio because of the foreign tourism, we're still not seeing that. Obviously, tourism dropped during the last couple of years pre pandemic, strong dollar, Relationships with countries, etcetera, I won't go through all that stuff. Then we had the pandemic and the restriction. So one of the unique things that I think and I hope, not knowing Delta or anything else how it's all going to play out, But at some point in the not too distant future, we're going to see really Good growth in our high quality tourism centers That should manifest itself in additional percentage rent. We have yet to see that for Primarily our outlet, but also our Vegas properties as well.

Speaker 2

We're like a forum shops. Yes. No, thank you. That's really helpful color. I mean,

Speaker 14

it sounds like the lease structure is more temporary versus a secular shift towards more Bill Laurent. So I appreciate the color there. One more for me, maybe shifting gears. I mean, you were fairly active in the mortgage market in recent months. Just hoping you could provide some color on the recent trends there and just ability for both you and others in the industry to get Non recourse financing on high quality malls today.

Speaker 2

I'd say it's significantly improved, But not easy, not a day at the beach. Retail is still look, I think a quarter like this, couple of other quarters, Pandemic in the rearview mirror, I expect it to get back to normal, but it's still not That market is still difficult. The unique thing about us is we have the unsecured market for us and We don't necessarily need the mortgage market. Sponsorship is really, really important, But it's dramatically improved, but it's not Where it needs to be, where it should be and where it has been.

Speaker 14

Yes, that makes sense. If you had to draw maybe a line in Sam, for sales per square foot or quality in terms of being able to get debt, is there anything you're willing to throw out there?

Speaker 2

Look, I think we've done like the Pentagon Cities of the world. We've done those in a really good solid mall in Not sexy town is tougher and it shouldn't be because the stability of that cash flow It's frankly pretty good under our management and ownership. But Austin sexy like we did domain, we had In old real estate parlance, we over financed it. The Pentagon Cities of the world are fine. But if you have a traditional mall in a smaller market, even though it's Really good, really solid, really stable, still is more difficult than it should be in my opinion.

Speaker 14

Interesting. Well, thank you for the time.

Speaker 7

Sure. Thanks, Steve.

Operator

Thank you. Our next question comes from Ki Bin Kim of Truist. Your line is open.

Speaker 4

Thanks. Good afternoon. Can you talk about the retailer investments, the $195,000,000 of I would have thought you would have gotten that type of level of income towards like the Q4 just given the seasonality that That's inherent in retail. So I'm just trying to think about that compared to your previous guidance of $260,000,000 of EBITDA and I mean, should we expect a similarly strong quarter in the Q4? Or is there something unique that happened this time around?

Speaker 2

Well, again, remember, this is all So you're 100% right in that like traditional retailers, a lot of its back end weighted. So We budget the same way. So we way outperformed our 1st 6 months. Hard to know exactly what it will be the next 6 months. But we budget the ramp up too, So we'll see whether we're on budget, above budget, below budget.

Speaker 2

I mean it's but we budget that ramp up as well.

Speaker 4

Okay. So there wasn't anything unique to this quarter that was there's like a one time item or anything like that?

Speaker 2

Other than dramatic outperformance. That was what's unique about it. Yes. One time item, Stephen. Yes.

Speaker 4

All right. And What are your latest thoughts on acquisitions? It's a bid ask out there, how that compares to your kind of No, internal hurdles, just any kind of color you can share on that?

Speaker 2

Well, we really it's really There's no action. We've got I mean, I don't know if I should say this publicly, but it's a little late now. I mean, there's we're really not looking at anything that I know of. There's really no action. So it's really hard for me to comment on it because there's just not much happening.

Speaker 4

Okay. Thank you.

Speaker 2

Sure.

Operator

Thank you. Our next question comes from Linda Tsai of Jefferies. Your line is open.

Speaker 15

Hi. With the pandemic driving more buy online and pickup in store, how do you think retailers are Considering their occupancy cost ratios and is this a similar approach to the way the retailers you've invested in also approach occupancy cost ratios?

Speaker 2

Well, I mean, that's like there's no standard answer other than to say, We are if they buy online and pick up in store, that sale goes through our In our leases, that sale goes into our sales calculation. So, it's not like it's excluded. So that's going to be part of our occupancy cost discussion.

Speaker 15

Got it. And then any sense of how the comps have trended for your retailer investments The past couple of months, maybe it relates to 2019 levels?

Speaker 2

How Investments did to 2019.

Speaker 15

Yes, like same store sales.

Speaker 2

Yes. I would say generally above 2019, Except for J. C. Penney, because they really were not in bankruptcy in 2019. So we're still having The bankruptcy, they went into bankruptcy in 2020, early 2020.

Speaker 2

So They had a lot less unaffected year. So we're still below 2019 levels, but the rest of them are above 2019 levels Pretty handsomely.

Speaker 15

Thanks.

Speaker 2

Sure.

Operator

Thank you. Our next question comes from Haendel St. Juste of Mizuho. Your line is open.

Speaker 13

Hey, good evening out there. For a second, clearly the industry has gone through some changes here last year, few more shorter term deals being done, percentage rent Deals are a bit more prevalent. I guess I'm curious as you look at the U. S. Mall business here over the next year or 2 and more especially in that period from 2023 to 20 5, I'm thinking about how do you assess the likelihood that leases perhaps Don't necessarily go back to being long term with fixed rate contractual rent bumps or maybe they become more like In Asia, where they are, more percentage rent and perhaps the leases are shorter in nature.

Speaker 13

And so I guess I'm curious if you Seeing what you're seeing, the tone of the conversations, what your thoughts are on there and maybe some color on the average change in lease term here being signed in the portfolio the last couple of months.

Speaker 2

Yes, the term hasn't changed all that Significantly. I would look, I would say that I don't think there's A big fundamental shift when you tend to go short term, It's because you can't agree on what you think the fair market value is. And so you kind of do a short term deal. And again, there's some cautiousness from the retail community because of the pandemic. But I think assuming we get over this, I think it's we're going to see long term deals.

Speaker 2

We also use short term deals to our advantage because One is we may be testing out a new concept. One is we don't like the rest of the retailers offering. So Let's keep that retailer in there while we go find a better long term tenant. There's a redevelopment. We want to move people around.

Speaker 2

There's all sorts of strategic reasons to do Short term leasings, but I think that the simple straightforward answer is I don't think that the fundamental Nature of our business has changed in terms of long term leases. Listen, the retailers, if they're investing in The better retailers want long term leases because they want the store to look good. They want their personnel To be there, they don't want to go through different personnel. Personnel at the store levels know when leases are short and when leases are long, We're more committed to that company. So they're as motivated in many, many cases as we are to have long term leases.

Speaker 2

So I really don't think other than because of the nature of the pandemic That short term leases are de facto of the new industry. I just don't see it. No retailer is going to invest in a store without a long term leases and all the better retailers All want a good physical plan, all want to put in their omnichannel capabilities and they're not going to do that on the short term lease.

Speaker 13

I got you. And I appreciate those comments. I was just trying to understand that if there's any concern on your part by perhaps the lease Expiration schedule that's building up here over the next couple of years with some of the shorter term leases that have been signed in the last year or 2, Adding on top of the normal lease expiration schedule, especially in that 2023 to 2025 period in which you'll be anniversarying again, I think some tougher comps from leases signed 7 to 10 years ago. Yes.

Speaker 2

I think, again, Because of the quality of our portfolio, I'm not concerned about that. The reality is We may be negotiating from a position of better position because Our properties look great, sales are great, people a lot of the physical retail has You know, dissipated in the markets where the action is. We've made those bets all the time that we're going to bet on the future. And if we don't we can't make a long term deal, we make it short because we're betting on the future. And we've been right more than we've been wrong in those That's, but we're not always right.

Speaker 2

But that's the judgment that we have to make and we make it reasonably well, In my opinion.

Speaker 13

Okay, fair enough. And a follow-up, if I could, on the leasing spreads, understanding that that's been impacted by some of The

Speaker 7

leases you're doing with

Speaker 13

the lower percentage rent thresholds, I guess I'm curious,

Speaker 2

are you

Speaker 7

looking to provide No,

Speaker 1

it's a little bit

Speaker 2

of that, but it's Primarily the mix, as I've stated. And again, it's not space by space.

Speaker 13

Understood, understood. I was just curious if you were able to provide a figure net of these newer leases that have been done here with the lower percentage rent thresholds.

Speaker 2

I mean, we could let me just say this. We could paint An unbelievably good picture there, but we just put all the stuff in and the number is the number. So if we went space by space, if we did it over a certain period of time, if we there's all sorts of ways you could Create the number we would want you to focus on, but it's just a number to us. It's not What's driving our business? Okay.

Speaker 7

All right. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Greg McGinnis of Scotiabank. Your line is open.

Speaker 10

Hey, David. Hi, team. I think one of the key concerns for investors today is the potential Longer term drag from lower quality assets, maybe at least not if they remain primarily retail. Are you thinking about investing or maybe not investing in the different quality bands within your portfolio to extract the most long term value from those assets?

Speaker 2

Really not much of an issue for us. It's a de minimis number. And we it's like any other company, if you have a profitable business, maybe you don't invest in it. If you don't think the growth is there And you milked the cash flow, but if investors are concerned about that, my initial reaction is, We should do a better job of explaining the quality of our portfolio and The depth and breadth of our business. So we'd encourage you to have them call us.

Speaker 2

We'd be more than happy to walk through the portfolio, answer any questions that they have on it. But I don't think after that, they would come away with that being A real concern. If that does happen, it's on the margin, $0.03, dollars 0.05 something like that. So anybody that's concerned about that, please call me, Brian, Tom or you can set it up and we'll walk them through the asset base.

Speaker 10

All right. Appreciate that. Could you possibly touch on maybe how the operating performance differs in the higher end and the lower end? You used to give those NOI weighted numbers, which were helpful, but just

Speaker 7

curious how that performance is going today.

Speaker 2

I have them there pretty I have him somewhere yes, let's see. Basically, occupancy in the EBITDA weighted is Yes, 93.2 to 91.8, okay? And average base minimum rent is higher, obviously, but The spread is about the same and the total rents about the same And sales are rolling 12% or pretty consistent on a percent basis. But the rolling 12, and you can't remember rolling 12, we have 3 months of downtime, so it's kind of irrelevant. But the most important number is occupancy and it's a little bit better.

Speaker 2

Okay.

Speaker 10

So I guess really what I'm trying to understand, I think what others are trying to understand is whether or not there's any need for A higher level of dispositions post pandemic or maybe just as the retail market evolves, Right. How the

Speaker 2

portfolio We've got we've always been selling. We just sold the Residential thing at like a below sub-four cap rate. There are a couple of retail properties that we've earmarked for sale. Market's not quite there. We'll see what happens.

Speaker 2

Thank you.

Speaker 7

All right. Thanks.

Operator

Thank you. Our next question comes from Juan Sanabrea of BMO Capital Markets. Please go ahead.

Speaker 16

Hi. Just wanted to hit on the guidance question again. It seems like you guys have outperformed expectations on the retail side and your investments, But the guidance implies that decel kind of X to one time from Clapier. Should we just think of that as just conservatism built in For the second half, given the volatility on the retail side or is there another reason for the sequential implied decline in the back half from a

Speaker 2

Well, look, I think All I can tell you is that we've beaten our Q1 or Q2. We hope to beat 3rd and we hope to beat the 4th, But we're in the midst of the 3rd and we're in the midst of the 4th and we'll see It's how it shakes out, but we feel, as I mentioned to you earlier, We feel pretty good as to where we're positioned.

Speaker 16

And just my follow-up is, In terms of mall operating hours, are those back to pre pandemic levels? And if not Yes,

Speaker 2

that's a good question. They're inching back toward it more or less. We may be an hour short We may be an hour short on like Monday through Wednesday, but basically Thursday, Friday, Saturday, we're

Speaker 16

And is that just a lack of availability of labor issue or is it something else at this point?

Speaker 2

No, it's pretty back to normal. I think that in some cases, the retailers liked it, Mike, it's something we're always monitoring and it's there is It's a very interesting subject because some retailers love it, somewhat more the hours to go back, It gives me a headache when I think about all the different opinions. But it's pretty much back to normal, maybe an hour short in the early part of the week.

Speaker 7

Thank you.

Speaker 2

Well, it's something the important point is something we monitor and manage Daily, weekly in significant consultation with our retailers. And it has increased materially since the early days of reopening.

Speaker 16

Understood. Thank you.

Speaker 2

Thank you.

Operator

Thank you. At this time

Speaker 2

No, go ahead. I would go ahead, operator.

Operator

Yes, at this time, I'd like to turn the call over to David Simon for closing remarks. Sir?

Speaker 2

All right. Thank you. Have a great rest of your summer, and We'll talk soon. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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