Q2 2021 Simon Property Group Inc Earnings Call

Thank you for standing by and welcome to the Q2.2021Simon 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 session.

Ask a question during the session you will need to press star 1 on your telephone.

Please be advised that today's conference is being recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Senior Vice President Investor Relations. Tom Ward you may begin.

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 maybe 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. Please note that this call includes information that maybe accurate only as of today's day.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release from 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 that Simon Dot Com. Please note. Our 8-K filing is still in process with the SEC. However, it has not yet been accepted Tonight in the meantime, as mentioned previously the 8-K and posted to our website.

For those of you who would like to participate in the question answer session. We ask that you. Please respect our request to limit yourself to 1 question and 1 follow up question. So we might allow everyone with interest the opportunity to participate.

Prepared remarks, I'm pleased to introduce David Simon Good evening I'm pleased to report our business is solid and improving.

Demand for space in our well located property is increasing.

I'll turn to some highlights of our profitability.

Cash flow has significantly increased.

Second quarter funds from operations were 1 point to $2 billion or $3.24 per share our domestic operations had an excellent quarter, our international operations continued to be affected by.

Governmental closure orders and capacity restrictions, which cost us roughly 6 cents per share for this quarter compared to our expectations I.

Do do the equivalent of a 2 and a half months.

Of closures.

As we said in the press release or our quarter results included.

A noncash gain of $118 million or <unk> 32 per share from the reversal of a.

The deferred tax liability at play here, we generated over $1 billion in cash from operations in the quarter, which was $125 million more than the first quarter and additional.

Additionally.

Compared to the second quarter of last year, our cash flow from operations was breakeven.

Due to the Lockdown domestic international property NOI combined increased 16, 6% year over year for the quarter and 2.8% for the first half of the year remember the first quarter of 2020 was relatively unaffected.

By the COVID-19.

19 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 first quarter, we continue to see demand for space across our portfolio from healthy local regional and national tenants entrepreneur.

This restaurant tours.

And mixed use demand.

Ever so increasing day by day, our team is active and signing leases with new and exciting tenants average base minimum rent was $50.3 <unk>. Our average base rents was impacted by the initial lower base rents, we agreed to and addressing certain 10.

Covid negotiations.

In exchange for lower sales breakpoints it variable rents that were recognized in the first half of the year were included it would add approximately $5.

<unk> <unk> 2 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 this spread.

Include large footprint entertainment.

Fitness and large scale retailers these boxes.

Big box deals reduced our opening rate is theyre 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 base income.

Just on sales as I mentioned, just recently leasing activity accelerated in the quarter, we signed nearly 1400 leases for approximately $5.2 million square feet.

A significant number of leases in our pipeline.

Through the first 6 months, we signed 2500 leases for over 900, I'm, sorry, $9.5 million square feet, our team executed leases for 3 million more square feet or over approximately 800 more deals compared to the first 6 months this year.

As well as I'm, sorry, compared to the first 6 months of 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 debt that was the most active deal committee that they've had in several years now retail sales continued 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 than <unk>.

Compared to June of 2019 multiple regions in the U S recorded higher sales volume in June and for the second quarter 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 a third outlet in France. The end of the quarter New development redevelopment was underway across all our platforms.

For our share of the $850 million.

Our retail investments posted exceptional.

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 in Aero Pastel Sparks 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 at $1.4 billion and they do not have any outstanding balance on your line of credit.

Penni will launch several private and national brands later this year.

As well or is there a new beauty initiative.

Taubman Realty group is operating their 2021budget.

At a level above debt and above our underwriting.

And their portfolio our portfolio shows resilience as sales are quickly returning to pre <unk> pre pandemic levels year to date through June retail sales.

Our 13% higher than the first half.

2019 balance sheet.

As you would expect we've been very active in the capital markets. We refinanced 13 mortgages in the first half of the year for a total of $2.2 billion in.

In total our share of which is $1.3 billion at an average interest rate of 2.9%.

Our liquidity is more than $8.8 billion consisting of.

Billion dollars consistent consisting of $6.9 billion available on our credit facility and $1.9 billion of cash including our share.

JV cash and again, our liquidity is net of $500 million.

U S <unk>.

Commercial paper debt outstanding at quarter end.

Dividend, we paid a $1.40 per share.

A dividend in cash on July 23rd for the second quarter that was a 7.7% increase sequentially and year over year today, we announced our third 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.

Declaring dividends as we announce our quarterly earnings now guidance.

Given our results through the first half of the year as well as our view for the remainder of 2021, we are increasing our full year 2021, <unk> guidance range from $9.70 to.

$2.9, an 80 cents per share to $10.70 to $10.80 per share. This is an increase of $1 per share at the midpoint.

The range represents approximately 17% to 19% growth compared to 2020 results before we open it up to Q&A I wanted to provide some additional perspective.

First we expect to generate approximately $4 billion in <unk> this year.

That will be approximately 25% increase compared to last year, and just 5% below our 2019 number to be just 1.5% below 2019, given all that we've endured over the last 15.16 months.

Clothing 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 second we expected to distribute more than $2 billion in dividends. This year keep in mind, we did not suspend our dividend at any point during the Panther.

And in fact, we have now increased our dividend twice already this year.

Now just to 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 <unk> multiples compared to other retail reach retailers and the S&P 500, and our dividend yield is higher than the S&P 500 by more than 250 basis points treasuries by 325 basis points in the REIT industry by 150 base.

<unk> 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 and cash.

Cash flow and returned to our shareholders.

And we're ready for questions.

Thank you as a reminder to ask a question. Please press star 1 on your Touchtone telephone to withdraw your question press the pound key.

Our first question comes from the line of Steve <unk> of Evercore ISI. Your line is open.

Thanks, Good afternoon David.

I guess I wanted to just start on the occupancy trend, which was up pretty nicely from <unk> to <unk> and you talked about the leasing activity that you had in the quarter and the pipeline could you just maybe share with us what your expectations are for occupancy by the end of this year and what's sort of embedded in the guidance.

Well, it's you know the guidance.

Is.

Affected by the continuing uptrend, we expect our occupancy by year end debt.

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 your seat.

You know when talking to my head of leasing.

I mean, we are.

David This is an overstatement, we're tickled pink.

By you know.

The demand by the new retailers and tenants that are surfacing.

You know the many many opportunities that we have in the with restaurants with a mixed used development.

You know and I and I mentioned to you our deal Committee had more deals and it has had an and.

In a few years, so look we still have a hole to dig out of.

You know 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 you know the work that our personnel are doing their creativity.

It's it's a it's pretty encouraging.

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 net sales seem to be coming back very quickly.

The debt dynamic is changing at all as you're having these current discussions about future leasing or do you still anticipate having to have kind of a lower base and take more upside going forward.

Look it's tenant by tenant.

Did the same store.

Strategy we.

<unk> adopted in the.

The height of the pandemic is playing out.

Better than we could have expected we made the right move.

Got the renewals done.

We accommodated.

The vast majority of retailers, assuming they were reasonable in their approach.

You know we.

We got the job done we kept our property is 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 realities there.

There is always going to be a few a handful of situations would bet on the debt will bet on the come you know bet on retailers because we have confidence in.

Our properties, we have the confidence and 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 there throwing the baby out with the Bath water.

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 T D.

We've got the evidence.

That's it from me thanks, Thank you.

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

Hey, good afternoon David.

And hoped.

I guess you guys had a really good non I guess you guys have had a really good quarter, just amazing to see guidance up by a buck.

Continuing on Steves.

Question there.

Amazing on the dividend rebound that based on the guidance on the leasing activity that you guys talked about and everything is good but you know when you think about people calling out the negative and believe it or not David people do look at some some things and negative limelight they'll see negative, 22% releasing spreads and that negative.

Brad is widening.

I understand that you did deals for GAAP 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 is a disconnect between your cash flow workout.

Right and.

Yes negative spread metrics, yeah look I I you know Alex.

Net.

Stats don't mean as much to me as they do to you because I look at cash flow growth.

Because there was a lot that goes into cash flow growth.

A lot more than spreads now the <unk>.

So reason that the spread is down to 22% is because of mix and the COVID-19 deals that we get the mix is that we.

You know the spread probably was higher than.

Because we had a lot of boxes that rolled out.

That were low rats.

And so we got that we got the benefit of that and now as we and those are out of our 12 month numbers.

Now that the kind of the new leasing that we're doing is in it and that's the soul.

That's the sole thing so I would encourage our investors that know what we're all about.

2.2.

Understand that it's a mix if I do a deal with Dick's or.

And entertainment box and they paid $15 a foot.

But the exploration of that box was 15 months ago with $3 a foot.

I still may have made a.

$15 spreads, but because it was in our <unk>.

Our rollout 15 months ago, you don't see yet it's not.

<unk> bite space.

If I get 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-19. It would racks, but 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 Yeah.

Yeah, I do I do I wasn't about to volunteer Tom Rehash for a space by space, but I do understand what you're saying that this is not a space by space, but the reality is if I add boxes that were that space that I got back there was a low numbers, but they were 15 months ago those.

<unk>.

Closings are is gone so that really jerks up the number and then I have the new lease.

Is that a low number that jerks of down, but if you really compare it over a longer period of time, we've got a positive spread quality.

Yeah. It makes it makes total sense.

Next topic, David obviously, it should make more than SaaS, it's the math.

No I can see the math as evidenced in the earnings growth and cash flow growth you've explained it well so that when understanding that.

That explanation that is not based on space by space. It makes it crystal clear what's going on right.

The next question is on the rising of Covid Delta whatever other various there are out there, obviously fact of life, but youre seeing tremendous leasing demand restaurant demand et cetera, your malls and.

In 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-19 is 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 b.

Increasing activity that we've seen this year.

Well it's true.

Very good question I'm only going to give you my personal opinion.

Which.

Which could be.

Wrong, but it's an opinion, so I guess technically it shouldnt be wrong, but I would say this I think.

The most important this is factual and I and I actually checked it. So as you know delta there are delta hotspots, we actually have malls in some of these hotspots.

The Atlanta, the Ozarks as 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 in our battlefield ball, which is in Springfield, Missouri.

Have we seen an uptick in Covid cases at the mall and we get the report from all the retailers and our staff and the realities, we have at the mall.

Is safe.

Okay. So even though we're starting to see counties talk about indoors.

There is no science about the mall I underline that we've been through we've been mistreated and this whole 18 month ordeal, but it is what it is I personally think that going back to your question.

And we I've checked it like in Florida, where theres. Some upticks, we have not seen in an enclosed mall.

Optic in Covid cases for the people that are in the mall staff, whether it's a retail or manage our management team period end of story.

No question about that so.

I personally think that people are.

Just going to deal with Delta.

Hopeful you know.

That people will get vaccinated.

We're not going to mandate vaccines, we're going to encourage them.

And I think we've got it got it.

Keep as being safe as possible.

Going on with our lives and where we need the mascot.

We're gonna mascot and I think the consumer and the.

And the folks are.

It's all just kind of.

Dealt with it are and are moving forward in that environment right now so I'm hopeful that you know as a country. We don't we don't get into these lockdowns they have produced.

I studied Sweden I studied France.

Covid reverts to the mean, Sweden did not locked down France did and if you look at the chart on Covid cases at all reverts to the mean locked down no lock that so let us do our business.

GAAP, if you need to the mall as say net.

Next question.

Thank you David.

Thank you. Our next question comes from Rich Hill Morgan Stanley Your question. Please.

Hey, good afternoon, David I wanted to just focus on maybe just some of the numbers and specifically the income from unconsolidated entities. If I'm looking at the numbers right you had a pretty healthy increase in that line item, which obviously includes Taliban along with the retailers I think I went to around $348.5 million versus $15 million last quarter.

Despite <unk>.

Depreciation and amortization looking like.

Approximately flat year over year, so that.

Just to me something pretty healthy is happening in those line items I was hoping you can maybe just give us a little bit more transparency in what youre seeing there and what's driving that beyond what you said in the prepared remarks, well I mean.

We're always transparent that'll be in our in our Q, but we.

We have our clay peer 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.

And all of our joint venture properties.

And that's really that's really a taubman because we've had the debt.

Debt once through that as well, but we also have increased depreciation and amortization associated with it. So that's kind of a you know not overly material in that big increase tell us what else do we want to say that's it.

Okay.

My assessment.

Thank you. Thank you I'm sure I'll follow up offline with Brian Thomas common 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 from time reading the transcript from last quarter correctly, you, obviously, just had a really big quarter.

Do you feel about that now and.

Do you see supply do you see potential for upside from that 5%.

Yes, we should outperform that.

Okay. That's my 2 questions. So I can go back I will get back in the queue. Thanks, David.

<unk>.

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

Great.

2 quick ones the more 1 quick 1 maybe going a little bit longer but the first 1 just on the dollar increase can you just break that down to just some made major buckets Buck increase to guidance about $380 million I would assume part of it 32 cents.

The deferred tax liability that you booked this quarter.

Which leaves another 68.

On the counter for maybe if you can just bucket it into like maybe retailer investments core and other would be helpful.

Youre right.

Youre right.

32 cents of that is.

Because of the deferred tax.

And then 68 cents.

Plus is from just core plus retail.

But we're.

We're not going to break out that.

No.

Which is which but the.

The good news is we've got our core.

The beating.

Our initial budget.

And retail the same we're in the same spot.

Yes, because your original retailer investment was like 15% to 20.

Peer that May have you may have blown through that just in this quarter. So that's what I was just trying to get a little debt.

1 is a lot more volatile.

It's entirely.

A fair and legitimate question and.

So theres no 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 32.

Which is right and then the other 68 and I hope it will be plus and that will be.

Retail and core.

Right.

I mean, that's a retailer multiples maybe retailers core I don't you know.

What's core what's non core.

Longer discussion.

Second question David is.

You know given your perspective now as a you know obviously, it's been a landlord forever, but youre increasingly now getting your hands dirty a being a retailer im curious what youre seeing from the retailers that you own and sort of dealing with this environment.

And turning it around relative to what you are as a landlord right because I think you said you tickled pink.

If you're sitting as a retailer that must be a different <unk>.

Description that you would use so maybe you can talk a little bit about.

What youre doing on the retailer side to bring people into the assets what type of promotions that you're trying to lure people to bricks and mortar and just the whole omni channel world with the retailers you own.

I'm just trying to understand that relative to your time at the landmark.

Well, yes, you're right, it's a long 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 was really important.

The retailers that we bought.

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 are most proud because we basically kept companies alive that otherwise would be debt.

Debt buried and liquidate it and what we what we found out is you know what if we just focus on the business focus on cash flow.

All right.

Focus on.

The consumer.

We could stabilize these business have patient money.

How patient you know now.

Worried about comp from 1 quarter to the next we could turn those around.

And I'm most proud because you know I should know maybe Brian those but you know our spark operations employ.

You know thousands of people and then when you add penny.

You've got you've got well over 50.60000 people so don't underestimate.

You know what we've what we've done I mean, we were not these were companies that were you know frankly roadkill.

And we and we saved them and I and for that I'm very very thankful for so that's that's 1 and then I'd say, Michael generally and I can get into this in more detail.

Just too much to tell you know yeah, 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 in the omni channel.

Right at the store level. Okay. So these are you know.

These are really turned into be good physical store operators know Eddie Bauer and you know as more sophisticated on the E. Commerce and then and then some of the other ones that we got when we bought them.

But the store is.

A really really important.

Component that gets that gets in today's world.

From what it is what it is gets overlooked and I'd say, we've also had a great partner and AVG debt.

You know adds a lot to the marketing and know how about sourcing debt was very important to.

You know to what we have and then Brookfield.

Has been a terrific partner as well and they had a lot of value there in some deals they've been converted and others, but you know they've been like us.

What do we what do we do this right for the business how do we keep these companies.

Alive in and Prosper.

Level headed.

Since you know the all the rest of the stuff. So you know.

Omni channel clearly, it's very important to the future, but these companies are basically surviving.

And prospering because of their.

Physical footprint not because of ecommerce.

Right.

And I don't think I.

I would say if I have a vote and I know you'd probably it wouldn't get near flow, but on the retailer versus core Simon earnings I do think there's a difference to the market can describe what multiple they want youre and if you have leases and contracts.

Retailers on the other hand up just a different business model.

I I.

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

That's why that's why I said, we want I don't want to you know the market is going to tell us where but at least having all the details.

The component I think it's just a very helpful piece of information that the street can then and then we can again to 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 and becomes a little bit more adversarial.

Got it we understand we understand the issue but.

You know at the end of the day, we will see the level of materiality to our well see if it makes sense, we've got partners in there as well.

But but.

I don't think well, let's let the market is the market I have to respect that so.

Here, what youre, saying.

I appreciate the time, David Thanks have a good 1.

Okay.

Thank you. Our next question comes from Caitlin Burrows of Goldman Sachs. Your question. Please.

Hi, everyone. I was just wondering maybe if we could talk a little bit about 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.

Lease termination fees.

I would say, we're really down to.

You know a couple of folks and it's really.

Came in way way down I mean.

Everybody's lived up to their.

They're basically COVID-19 deal.

And I would say right now.

Other than 1 or 2.

1 or 2 folks, it's really kind of business as usual and how does it how we do business better how do we grow our business.

How do we do things more strategically so I think I'm hopeful that debt at whole you know unfortunate.

You know it was tough for us it was tougher than we were all dealing with unprecedented.

Secrets of event. So I think it's all behind US you know our collection rates are in the <unk>.

Back to normal and yes, we've got 2 or 3 folks that are still out there, but you know if we.

If they stay out there.

It is what it is and we can't.

Yeah.

We're moving forward so it's all pretty much behind us assuming.

There is no no no.

No nothing that we had to deal with like we did.

Last last year.

Got it Okay, and then maybe just a quick 1 on the other income both the lease settlement income was up decently in the quarter and also the bucket for other other income.

So I was just wondering if you could give some detail on the line items, Yeah. I remember lease settlement income was up a few million dollars not much maybe a couple of cents.

And we sold.

1 residential property at a gain.

And we also had which as you know we had a significant increase in our Simon brand ventures business, which is that you know probably the bigger grower of that number yeah, absolutely Caitlin This is Brian.

We've we saw a pretty substantial increase in Simon brand ventures, our gift card business in some of our kind of more food operations, which obviously in the second quarter of last year were non existent.

Got it okay. Thanks.

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

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 makes a lot of sense I mean, clearly northgate never skipped a beat and now fits plaza really looks like it's back on track you know maybe I missed it earlier, David but you know I recall the <unk>.

Office component being temporarily shelved.

But what.

What do you need to see to ramp additional transformational type projects and is there a ladder.

Development program in place or any material ongoing in process entitlement requests you can share.

Sure.

Right about fifth Ware.

We're basically all systems go there.

We expect to finish everything by the end of 'twenty, 2 which would be the new class a office Nobu Hotel lifetime Athletics. So it's all it's all going back Youre right. We did shut it down during COVID-19.

We commenced we restarted this I don't know 2 or 3 months ago.

We were the approved some of this stuff earlier, but we really.

Our finishing the projects. So that's that'll be really you know I'm really excited about that so hopefully we will be able to you know.

Show, you that and do something really proud of.

And.

I would say we're really.

We took a hiatus of 12 months more or less Brian right 12 to 14 months.

So we're back at it I think I mentioned last call we're probably.

In some cases.

Decrease from the amount of maybe new retail space.

But where we're back at it and it's more mixed used than ever the demand on the mixed use front has been.

Really really nice to see and just to name a few that we're in the permitting process would be brea in Orange County.

We've got stoneridge in.

In Northern California.

Area.

Just to make just to get the permitting process.

Ghosn restarted some of those things we have to kind of start again because.

The plan is different but the.

<unk>.

The idea to redevelop a lot of them are the old the dip.

Department store boxes that we got back or or that we.

Ended up buying.

You know where were we.

We're going with the plants may be a little.

Less.

Grandiose so to speak but it.

We're very active on that front.

Cross the board so.

You know look for more and more of our pipeline.

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.

No.

They didn't they.

It keeps same day, but we don't have a lot of empty.

Boxes, there so that was.

So there's not like a plethora of opportunities that you might otherwise think.

There are some and.

We're working we're working those as well.

And then you know, it's great real estate great location.

And 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 you know them.

The general movement there the suburbs are.

R R.

Especially in markets that we're in are going to be really appreciated.

And.

And I think we're going to be the center of activity.

Yeah.

Okay, great. Thank you and I guess, just my follow up hopefully a quick follow up to this question.

Is the 13th story class a office building is lifetime co working anchor tenant there did you sign them.

Pre leased any of this space that gave you confidence to move ahead or are you or are you just moving ahead, because you feel better in general.

Let me, let me be clear so so lifetime is its own separate building.

It's actually built on top of a.

World Class Food Hall that we're doing with <unk> 3.

And inside the life time athletic they will have their own co working.

The office building.

<unk> is on its own it's not there's no leaching the lifetime on that it's 13 stories.

We're building the spec that we just signed our first <unk>.

90000 square foot lease so you know.

The short answer is yes, we are going.

Thank you.

Sure.

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

Thank you.

Looking at the guidance for 2021.

We covered a half of the loss from your previous peak.

<unk> 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.

Just quarter over quarter.

I'm, just really I didn't really I don't think anybody understood. Your your connection is not that good correct. So maybe can you restate it please.

Sorry can you hear me now.

Yes.

Okay.

Your guidance for 2021.

Already brings you halfway back to your peak <unk> per share.

Thinking about the second half is that going to be harder to to recover or.

Easier.

Well, if you go quarter over quarter, I would just say and I'll, let Bryan Adams weigh in but.

We had that we.

We had the brunt of Covid abatement and relief of default in Q2, and 3 if I remember correctly. So the comparison to Q3 of 'twenty, 1 compared to 'twenty should be you know.

Should be a pretty big GAAP 4 by Q4, we had dealt with most of the stuff.

So if that's your question I'm not sure I really maybe confronted.

Comprehended completely but.

If that's your question.

Hopefully that answers it.

Great and then just.

Do you see foresee any changes in the REIT rules that might allow you to grow your retail in some of your other businesses.

Beyond previous limitations.

Well.

It's hard to hard to know Craig I'm hopeful I mean.

There are there are limitations, you're right, 100% right there are limitations.

And I'm hopeful that.

The folks that debt do legislative stuff will understand.

The benefit that we've provided for basically working families.

Because we've saved these retailers. So yes, there are rules that make it complicated.

They they should be.

They should be less remember, our retail investments or in a taxable REIT subsidiary. If you look at our P&L, you'll see a big tax expense correct.

Gentlemen.

That's associated with the fact that our Trs taxable and we're paying the corporate tax rate at its full level. So.

And then when you look at that.

Hopefully the benefit of what we've done.

For these companies that otherwise would you know.

May not exist frankly.

Debt to the folks that debt.

You know that that debt 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, a lie to you know to.

You know try and core.

Create employment and all the good stuff that they do in the community. So I am hopeful.

There's no certainty on that.

Understood. Thanks.

Thank you Craig.

Thank you. Our next question comes from Floris Van.

It does come of Compass point your line is open.

Thanks for taking my question.

David.

I have a feeling of sort of deja vu, but we've seen this picture before following the great financial crisis, obviously things are different.

Of course, but.

It seems like we are.

We're reliving those.

Those times, though a bit more.

Maybe if you can my question to you is it's regarding tenant sales again, the key lifeblood to your malls and the key to the obviously to the retailer profitability too.

I'm very encouraged by your statement of retail sales in June equaling in your portfolio equaling.

19 levels and up 5% from me, maybe if you can give some more breakdown in that.

Not particularly.

As it comes from out of the first quarter and also.

Did I hear you correct did you say that.

That carbon sales or 13% ahead of 19 levels.

Correct, yes.

Does that.

I mean, it's a good number I mean I you know look I do think we all deal force in a.

You know very tough predict.

It's really hard to be too.

Make any.

Predictions, but I think what it.

Should tell all of us is debt.

You know and I've said, it a little bit earlier, I mean physical shopping.

You know it is.

People like to physically shop, okay.

We are bye bye.

By no stretch of imagination.

Moving 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 items Californians and others.

And I just think the most important point is that you know.

People like physical shopping and you know I mean less from you hear it all the time and I'm sure you get.

No.

Your clients ask you well nobody shops physically anymore, and you try to defend it and or.

So yeah, but what about this what about that I think we're just.

We're showing that matters to the consumer.

Under these communities and hopefully that will continue.

And it is.

I will say this maybe just getting to your question it is across the board.

So it's yes, it's the luxury retailers, but it's also you know arrow pastel, which the AUM as you know I won't tell you I'm not sure if I'm allowed to tell you but.

AUM is lower than what it might be for a luxury Taylor. Okay. So you know it's at Forever 21, you know, which is the low AUR. So.

So.

No I think thats, just encouraging hopefully the trend will continue but I think the consumer.

Like the idea that.

You know that they can go to physical shopping place.

Great and if I can follow up I guess.

Okay.

Wanted to you talk about the fact that your lease spreads are not comparable.

Not a space for space like for like I.

I Wonder if you if you had that and also what is the impact if you have if your average sales.

Get to 19 levels, what's the impact on the effective rent that you would be getting relative to the reported rents that you.

You've talked about.

Well I think the easiest way to do that I mean, that's a complicated number because you've gotta go retailer by retailer we did for the first 6 months.

And our estimate of what our base rent would be based upon you know kind of them.

You know it.

We got the benefit there is $5 more face rents had we not lowered our break points.

Due to the Covid related so.

That gives you an indication of kind of.

Hum.

You know an interesting.

Stat.

That's maybe it's of interest to you.

So.

You know I don't have you.

Yes.

I can't really give you a number right off the top of my head I. It would just be a guess and I really don't want to do that.

On you know 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.

On you.

And the analytic community, but I really encourage you.

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 rate of X and they think theyre going to be in percent rent. They include that in their spreads.

You know we just it's all in an all out mixed matters because of these boxes I explained to you.

And you know what it will manifest itself from the cash flow and you know the big cash flow growth story that we have going forward is sales growth.

And put us put sales growth and occupancy growth.

SPV growth getting that back to normal.

That's the big story, and and then lease.

So the spreads the spreads.

Yeah, I can do a bunch of boxes the spreads could look not as good as you have looked historically, but the reality is Mike cash flow went up because that was vacant space and it's already out of the spread calculations.

So focus on cash flow growth was the bottom line.

Thanks, David appreciate it.

Sure.

Thank you. Our next question comes from Mike Mueller of J P. Morgan Your line is open.

Hi.

Q2 looks like it was about $2.92 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 non.

Income that won't recur in the back.

Sorry, what was the level of income than in <unk> that won't recur going forward.

Okay.

I'm not sure.

Michael can you go through that question again please.

Yeah, I don't think today only mean debt.

Not only let me let me say it this way the only thing that's not going to recur as the clay Pierre deferred tax gain.

Again, I can't tell you exactly what retail sales are gonna be retailer sales I can't tell you what.

Our retail investments is gonna be.

So there's but the only thing thats kind of nonrecurring.

We have certain nonrecurring things every year lease settlement income sale of income producing property.

These things always kind of ebb and flow, but the only thing that is.

Not the debt.

Weaker is the deferred tax that's a 1 time gain clearly articulated in our press release of 32.

What about prior period collections were there any in there that were significant no. They wouldn't they wouldn't come through the P&L.

We don't know recovery Michael Yeah.

Got it okay. Thank you thanks.

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

Hi, good afternoon.

So it seems clear that <unk>.

<unk> 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 variable rent component and how is that different from before the pandemic.

Well.

Look I think that the.

The answer the simple way to say that is there.

If we have if we are willing to bet in some cases.

On the prospects of our property and our retailer.

And.

And to the extent that they are cautious because of what they've had to deal with as well.

We're willing to accept a lower base rent.

In some cases.

If we get a 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.

You know, let's say on an average.

We have 12% a year.

Year that rolls over now last year, we had more.

Only because we dealt with bankruptcies, which in theory.

You know when you're in a bankruptcy all your leases rollover 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've made.

Artificially low breakpoints to make some of the income back up with their sales.

I would say going forward.

We're pretty much back to the normal.

Way to do it so which as you know.

Trying to get the appropriate base rent.

And a natural break.

Over and over that 2 to generate percentage rent.

And I wish you and I will say this.

We are still really important 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.

You know.

Obviously tourism dropped during the last couple of years pre pandemic strong dollar relationships with countries set or I won't go through all of that stuff than we had the pandemic and the restriction. So 1 of the 1 of the unique things that I think and I hope.

You know not knowing delta or anything else, how it's all going to play out.

But it but at.

Some point in the not too distant future.

We're going to see really.

Good growth in our in our.

High quality tourism centers.

That's debt you know that.

Debt should manifest itself in additional percentage rent, we have yet to see that.

Paul.

Primarily our outlet, but also you know our Vegas properties as well.

You know like a forum shops.

Yes.

No. Thank you that's really helpful color I mean, it sounds like the lease structure is more temporary versus the secular shift towards more variable rent. So I appreciate the color there.

1 more from me, maybe just shifting gears I mean, you were fairly active in the mortgage market in recent months.

Hoping you can provide some color on the recent trends there and just.

Ability for both you and others in the industry to get nonrecourse financing on high quality malls today.

I'd say, yes.

<unk> significantly improved but not easy.

No.

But not easy not not a day at the beach.

Retail is still.

Look I think.

Quarter like this a 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 improve but it's not.

It's not.

Where it needs to be where it should be and where it has been.

Yeah that makes sense, if you had to draw a line in the same for sales per square foot or quality in terms of being able to get debt is there anything you're only willing to throw out there.

You know.

Look I think we've done like the Pentagon cities of the World We've done.

We've done those in.

A really good solid.

You know mall and.

You know not sexy town.

How is tougher and it shouldnt be because the stability of that cash flow.

As.

It's frankly pretty pretty good under our management and ownership. So you know.

Austin.

Sexy seem like we get domain.

We had a an old real estate parlance, we over finance debt.

The Pentagon cities of the World are fine, but you know if you have a traditional <unk>.

All 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.

Oh interesting things at the time.

Sure. Thanks Lou.

Thank you. Our next question comes from key being Kim of Truest. Your line is open.

Thanks, Good afternoon.

Can you talk about the retailer investments the $195 million of NOI.

I thought you would have gotten that type of level of income tours like the fourth quarter, just given the seasonality that is inherent in retail. So just trying to think about that compared to your previous guidance of 260 million of EBITDA and.

I mean should we expect similarly strong quarter in the fourth quarter or is there something unique that happened. This time around well again remember this is all so you're right you're 100% right in that.

Like traditional retailers a lot of its backend weighted so.

We budget the same way so.

We you know what.

They outperformed our first 6 months.

Hard to know exactly what it will be the next 6 months.

But we budget, we budget to ramp up too.

<unk> been so well.

Well you know we will see whether we're on budget above budget below budget I mean, it's but we budget that ramp up as well.

Okay. So there wasn't anything unique to this quarter that was curious about 1 time item or anything like that.

Other than dramatic outperformance that was what's unique about L..1 time items.

Alright.

And.

What are your latest thoughts on acquisitions.

Is the bid ask out there.

How that compares to your kind of internally.

Internal hurdles.

Just any kind of color you can share on that.

Well.

We really its really Theres no action we've got.

I mean, I 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.

To comment on it because there's just not much happening.

Okay. Thank you.

Sure.

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

Okay.

Hi.

The pandemic driving more buy online and pick up in store, how do you think retailers are.

Considering their occupancy cost ratios and is this a similar approach the way the retailers you've invested and also approach occupancy cost ratios.

Well I mean.

That's like there's no standard answer other than to say.

You know we are if they buy online and pick up in store net sale goes through our.

And our leases debt 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.

Got it and then any sense of how that comps have trended for your retailer investments.

A couple of months as maybe it relates to 2019 levels.

The how the retail how our retail investments did to 19.

Yeah like same store.

I would say generally above 19, except for jcpenney, because they really were not in bankruptcy in 19, So we're still having the bankruptcy.

They went into bankruptcy in 2020 early 2020.

So.

They had a lot less unaffected year. So we're still below 19 levels, but the rest of them.

Above 19 levels yeah.

Pretty pretty handsomely.

Thanks.

Sure.

Thank you. Our next question comes from Handel St. Joost of Mizuho. Your line is open.

Hey, good.

Good evening out there.

Yeah.

Out here.

So I wanted to come back to.

Leasing for a second clearly the industry has gone through some changes here over the 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. Small business here over the next year or 2 and more especially in that period from 23% to 25 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 an in Asia, where they are.

More percentage rent and perhaps the leases are shorter in nature, and so I guess I'm curious as you've seen.

Seeing what youre seeing the tone of the conversations whats 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.

The term hasn't changed.

You know all that all debt significantly I would.

Look I would say that.

I don't.

There is a.

Hum.

Big fundamental shift when you tend to go.

Short term.

Because you can't agree.

On what you think the fair market value is.

And so you know.

You kind of cash.

To do it.

On a short term deal.

And.

Again, there is some cautiousness from the retail community because of the pandemic.

But I think assuming we get over this.

I think I think it's.

We're going to see long term deals we also.

Short term deals to our advantage.

Because.

1 is we may be testing a new concept..1 is we don't like the rest of the retailers offerings. So, let's let's keep that retailer in there while we go find a better long term tenants.

There, there's a redevelopment where we want to move people around there's all sorts of strategic reasons to do short term leases, 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 to retailers.

You know if they are investing in the store the better retailers want long term leases because they want the right. They want the store to look good.

What their personnel to to be there.

Want to go through different personnel personnel at the store levels no when leases are short and when leases are long, they're more committed to that company.

No.

There is motivated in many many cases as we are to have long term leases. So I really don't think other than because of the nature of the pandemic.

You know that debt.

The debt debt short term leases are.

De facto 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 went a good physical plants all wanted to put in their omni channel capabilities and they're not going to do that on the short term rates.

Okay got you and I appreciate those comments I was just trying.

Trying to understand that if there is any concern on your part by perhaps the the lease.

Exploration schedule that.

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 25 period, and which you'll be anniversarying again, I think some tougher comps from leases signed 7 to 10 years ago.

Jonathan.

I think.

Again Bill.

Because of the quality of our portfolio or not.

Not concerned about that and the reality is.

We may be.

Negotiating from a position of.

You know of.

<unk> position because our property has looked great sales are great people.

Uh huh.

Out of the physical retail is.

You know.

Dissipated in the markets, where the where the action where the action is so.

We made so we've made those better all the time.

Our debt, 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 you know we've been right more than we've been wrong in those best but we're not always right, but I don't know, but that's that's the judgment that we have to make and we make it reasonably well in my opinion.

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

The rent the leases youre doing with the lower percentage rent thresholds I guess I'm curious.

Can you provide us a little bit of that but it's primarily the mix as I've said as I've stated.

And again it's.

It's not space by space.

Understood understood I was just curious if you were able to provide a figure net of these newer leases that had been done here with the.

The lower percentage rent thresholds.

No.

We could we could we could let me just say this we could paint.

Unbelievably good picture there, but we just put all this stuff in and the number is the number so if we weren't space by space. If we if we did it over a certain period of time if we.

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.

Alright, thank you.

Thank you.

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

Hey, David I can.

I think 1 of the key concerns for investors today.

The potential longer term drag from lower quality assets.

At least not the same rich.

Main primarily retail how are you thinking about investing or maybe not investing in the different quality bands within the portfolio to extract the most long term value from those assets.

Really not much of an issue for us it's a de minimis.

A number.

And you know we you know it's like any other company.

If you have a profitable business, maybe you don't invest in it.

You don't think the growth is there and yet and yet and you.

You know and your milk the cash flow, but if investors are concerned about that Mike.

My initial reaction is.

We should do a better job of explaining the quality of our portfolio.

And the.

The debt did the depth and breadth of our business. So.

We'd encourage you to have them call us 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 DNA.

A real concern it's al.

If that does happen and it's on the margin 3.5 something like that so.

Anybody that's concerned about that please call me Brian.

Tom or you can set it off from will walk them through the the asset base.

Alright, I appreciate that could you, possibly touch on maybe how the operating performance differs between the higher end and the lower end used to get those NOI weighted numbers, which were helpful. But.

I was curious how that performance is going today.

Have them they're pretty.

I have them somewhere somewhere.

Some oh.

Yeah, let's see.

Basically occupancy in the EBITDA weighted.

As.

<unk> 93 to 91.8.

Okay.

And our average base minimum rent is higher obviously, but the.

The spreads about the same.

And the total rents about the same.

And.

Sales or rolling 12 are pretty.

<unk> on a percent basis.

But the.

Rolling 12, and you cant remember rolling 12, we have 3 months of downtime. So it's kind of irrelevant.

But the most important numbers occupancy and it's a little bit better.

Okay. So I guess really what I'm trying to understand I think what I was trying to understand is whether or not there's any need or.

A higher level of dispositions post post pandemic or maybe just as the retail market.

All right how the portfolio.

<unk>.

So we've got we've.

We've always been selling we just sold the residential thing like that.

Uh huh.

Below sub 4 cap rate.

You know there are a couple of retail properties that we've earmarked for sale market is not quite there we'll see what happens. Thank you.

Alright. Thanks.

Thank you. Our next question comes from Juan <unk> of BMO capital markets. Please go ahead.

Yes.

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 a T cell kind of ex the 1 time from class B E.

Should we just think that that is it just conservatism built in for the second half given the volatility on the retail side or.

Or is there another reason for the sequential imply a decline in the back half from a clean second quarter run rate number.

Well.

Look I think.

All I can tell you is that we beat our first quarter or second quarter.

We hope to be.

Third and we hope to beat the fourth.

But we're in the midst of a third in line in the midst of the fourth.

And we'll see how it.

How it.

But.

You know how it shakes out, but you know we feel as I mentioned to you earlier.

You know, we feel pretty good as to where we're positioned.

And just from a follow up is just in terms of mall operating hours are those back to pre pandemic levels.

And if not enough yeah. That's a good question, they're inching back toward it more or less.

We may be in our shore.

<unk>.

Excuse me, we may be in our short on.

You know like Monday through Wednesday, but basically Thursday, Friday Saturday, we're pretty much back to normal.

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

No it's pretty back to normal I think that you know.

In some cases the retailers liked it like it it's something we're always monitoring and its.

Sure.

There is it's a very interesting subject because some retailers love it somewhat more hours to go back and 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.

Thank you, but it's something.

Important point, it's something we monitor and manage.

Daily weekly.

In.

Significant.

Salt patient with all retailers.

And it is and it has increased.

Materially since the early days of reopening.

Understood. Thank you.

Yeah.

Thank you at this time.

No go ahead go ahead operator.

At this time I would like to turn the call over to David Simon for closing remarks, Sir.

Alright. Thank you have a great rest of your summer and we'll talk soon thank you.

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

Okay.

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