Q1 2022 Simon Property Group Inc Earnings Call
Greetings and welcome to Simon property Group first quarter 2022 earnings conference call.
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Mr. Tom Ward Senior Vice President Investor Relations. Please go ahead Sir.
Thank you Peter and thank you all for joining US. This evening presenting on today's call is David Simon Chairman, Chief Executive Officer and President.
So on the call are Brian Mcdade, Chief Financial Officer and.
Chief Accounting officer.
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, and actual results may differ materially.
Variety of risks uncertainties and other factors, we refer you to today's press release, and our SEC filings for a detailed discussion of the risk factors relating to those forward looking statements. Please note that this call includes information that may be accurate only as of todays date.
<unk> of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's form 8-K filing both the press release and the supplemental information are available on our IR website at investors that Simon Dot Com Our conference call. This evening will be limited to one.
For those who would like to participate in the question answer session. We ask that you. Please respect our request to limit yourself to one question I'm pleased to introduce David Simon.
I'm pleased to report our first quarter results first quarter funds from operations were $1.046 billion or $2.78 per share prior to a noncash unrealized loss of eight cents from a mark to market and fair.
Value of publicly held securities our domestic operations had an excellent quarter, our international operations posted strong results in the quarter, despite being negatively impacted from the surge in U S. Dollar. We are also very pleased with the results from our other plant.
Form investments, we generated $1 billion in free cash flow in the quarter, an increase of 10% compared to the prior year period.
Domestic property NOI increased seven 5% year over year for the quarter and our international properties as I've mentioned.
<unk> performed well driving portfolio NOI growth to eight 8%.
Occupancy at the end of the first quarter was 93, 3% an increase of 250 basis points compared to the prior year and a decrease of only 10 basis points compared to our seasonally high fourth quarter year end of 2021 the number of tenant terminations in the first.
Quarter was the lowest reported in the last.
Five years, and our T. R. G portfolio occupancy was 93, 2% at quarter end average base minimum rent increased.
Compared to the fourth quarter and was $54.14 leasing momentum continued across the portfolio, we signed more than 900 leases for more than 3 million square feet in the quarter and have a significant number of leases.
In our pipeline in fact at our recent leasing deal Committee.
We approved the most deals since.
Since 2016, and overall were recently approved approximately 500, new deals representing 2 million square feet demand is very strong.
And interesting with.
With the volatility of the world our portfolio in the U S is in great demand.
Where I'm a worldwide brands restaurants, and entertainment operators as most retailers and tenants view the U S as the place to be.
Sales momentum continued for our retailers mall sales volume for the first quarter were up 19% year over year, we reported retail sales per square foot reached another record in the first quarter at $734 per square foot for the mall and outlet.
Uh Huh combined at 43% increase and 669 per square foot for the mills, which was a 50% increase <unk> reported a thousand 38 per square foot, which was up 52% year over year increase.
Our occupancy cost is the lowest that we've had in seven years.
We are pleased with the results of our other platform investments in the first quarter, including Spark group and J C. Penney J C. Penney's liquidity position is strong at $1 3 billion and it has no borrowings on its line of credit and perform better than plan I can say the same for spark.
Which also performed better than planned in the quarter Spark also completed the U S rebar transaction and we anticipate great things from this iconic brand remember, we expect reebok to incur operating losses for spark in 2022.
Due to the integration aspects of the transaction spark financial position like Penny.
Is strong with the recent refinancing of its a b L and it is in fact in a net cash positive position during the quarter. However, our investments in Soho House, and lifetime Holdings, which both became public companies at the end of <unk>.
Last year were impacted by overall market volatility driving an 8% unrealized noncash mark to market. These are high quality businesses that fit with our flywheel of unique companies and we believe these investments will generate value above our basis as they fully read.
Open and Reengage with their customers on the balance sheet front, we completed very timely a dual tranche U S. Senior notes offering that totaled $1 $2 billion, including their 10 year fixed rate offering at 2.65% early in.
In the year, we use the net proceeds to pay off.
Amounts outstanding on our credit facility. We also refinanced seven mortgages for a total of one point of $1 1 billion at an average interest rate of 2.92%.
And our liquidity stands at $8 billion now today, we announced our dividend of $1.70 per share for the second quarter a year over year increase of 21% the dividend will be payable on June 30, including our dividends declared.
Day, we paid more than $37 billion in dividends over our years as a public company 37 billion. We also announced today that our board of directors has authorized a new common stock repurchase program.
For up to $2 billion that will become effective on may 16th and we look at the valuation of our stock today at an S. S. A multiple of approximately 10 times relative to the historical valuations closer to 15 times and an implied cap rate of around 7% for a real.
Estate assets, we see substantial value in our stock.
Particularly given our belief and conviction in our future growth opportunities. Our balance sheet is strong continues to be a signup significant advantage for us while our cash flow generation.
Provides us with the flexibility to adapt as conditions warrant and as as we have proved countless times, we will be thoughtful and opportunistic on the buyback and keep in mind. This is in addition to the more than 20% increase in our dividend we announced today now.
Given our outlook for the remainder of the year, we are increasing our full year 2022 comparable F O guidance from $11.50.
To 11, 70 cents per share to $11 60.
To $11.75 per share, which compares to our.
Comparable number of $11.44 last year. This is an increase of 10 cents at the bottom end of the range and five cents at the top or an 8% increase at the midpoint. This does not include the previously mentioned unrealized loss or gain that may occur the rest of the year on our fair value of it.
Investments that I mentioned and please keep in mind that this guidance.
Increase comes in the face of a strong U S dollar and rising interest rates now just to conclude I am pleased with our first quarter results tenant demand is excellent and our real estate is a great hedge inflationary times hopefully our operating result.
And our announced stock buyback authorization today reinforces that we are primarily focused internally and growing our existing platforms organically and I think that well.
<unk> my comments ready for questions.
Yeah.
Thank you.
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Austin.
Yeah.
Yeah.
Our first question is from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, everyone. Good evening, maybe just on the guidance I know you don't like to give too many of the pieces, but given the current volatility in the Margaret macro uncertainties, which may or may not be impacting Simon.
<unk> increased slightly at the midpoint. So I was wondering if you could give some detail on some of the puts and takes what's performing ahead of your initial expectations first as what might be offsetting some of that.
Upside surprise, maybe occupancy leasing retailer stylus interest rates whatever you. Thanks My childhood.
Sure I mean, you're.
You're right. The reason Caitlin we don't go through the detail as you know, we we are a big company.
And.
There's a lot going on and we think it's better for the market just to focus on our in our totality of our results, but what's better is very simple our retail operations, which as you know our other retail properties is trending to be better than our plan.
That's number one most importantly, our property NOI growth is projected to be better than plan.
And the only negatives that you know, we're offsetting that or we have some exposure to floating rate debt. We're probably at the very very low end of other real estate companies, but we do have some but we don't have any commercial paper outstanding we don't have any outstanding amounts on our line.
For $125 million, which is primarily for tax purposes.
And and then obviously the strong dollar when we are when.
When we bring back our foreign earnings we have to we have to do it at a lower dollar that that has a more meaningful impact in the rising interest rate environment, but so far demand is really really good.
I don't want you know, we're not we don't pound the table here too much we do announce.
It carried away, but you know demand.
Demand is greater or at least some folks are very excited about.
And our property NOI as you know is a it's better than what we anticipated obviously because of the cold with a lot of restructurings on the leases and because of our high end, our tenant concentration and the amount of.
Sales that they've had I mean, there's volatility in that I cannot pinpoint exactly where our sales will come out on that.
And you know that will have some impact.
Impact on ultimately are resolved, but we tried to give you a range here that we feel very comfortable that we can produce.
Got it thanks for that I think that.
Suggestion or guide is one question so I'll stop there.
You're you're you're very kind to follow the rules okay. Thank you.
Yeah.
Thank you our next.
Next question is from Rich Hill with Morgan Stanley . Please go ahead.
Hey, good evening, I'll I'll try to fall Caitlin bleed and follow the rules as well Oh, Hey, David our income income from unconsolidated entities was.
It was it was a pretty healthy number this quarter in the past our past one Qs it's been slightly negative we model was it negative in the quarter to be conservative. So I'm just maybe wondering if you can walk us through what your expectations were for income consolidated entities versus how it actually played out.
Sure I'll I'll turn that over to Brian to walk you through you actually put together you know a piece of paper there for you guys in the 8-K to walk you through that because I know.
It's not confusing to us, but it might be to you. So hopefully this will help Brian take it over hey, rich Brian here. So we did add some additional disclosure to our supplement to break down our income from non consolidated entities as you can see the drip the driver of the change is our joint venture activity on our proper.
[noise] side, including the performance of our international portfolio, which David highlighted in his opening remarks.
And remember international last year really was suffering from more of a locked down and then the U S portfolio.
Got it and I am I allowed to ask a follow up question, if I understood well.
Sure.
Did it so politely, yes in your gentlemen, we're happy that we're happy that we're happy to hopefully Oh go ahead.
I'm, sorry invention, a dumb question, but the negative $18 5 million you reported for PRA GE, including amortization of excess investment well. What is what is sort of that is a clean number and happy to take it offline, but I'm I'm I'm actually just trying to back out.
How well T. R E. This quarter prior compared to prior quarters Kevin.
Yeah.
<unk> million was primarily from the excess investment of our.
Oh for the Taubman purchase. So this is net income remember it's Richard.
Yeah. So what we have to so we have to when you capture things. Obviously, if you put it to market value and then when you amortize that investment over its life has nothing to do with cash flow.
Okay, we can catch up later on it.
Thank you.
No problem.
Thank you our next.
Next question is from Derek Johnson.
It's Deutsche Bank. Please go ahead.
Hey, everyone. Thank you I'm, just I guess I get one on the retailer NOI contribution or I think it's the NOI from other platform investments. It was a 26 million this quarter in first Q.
But when I look at it versus last year. The contribution was I think around three 5 million. So just wondering if you could walk us through the drivers and maybe the delta between this.
This quarter and last year.
Derek the change is simply better performance out of our retailer investments in the first quarter of this year relative to last year. There was still a lot of volatility is still in the world and.
Yeah, we're definitely still closures throughout the U S specifically, California in the first quarter of last year or so.
Driver is just simply better performance out of the retailer investments.
[noise], it's good news by the way just so you.
Just don't want you to be confused it's always good to have better performance. Thank you Brian .
Okay. Okay.
Yeah, just I just wanted to put it in perspective, it's good to have better performance.
Next question.
Okay.
Thank you. Our next question is from somebody sent out with Evercore ISI. Please go ahead.
Good evening, everybody, David clearly the leasing environment is very strong you talked about the 3 million square feet.
But I was wondering if you could maybe provide color on sort of the pricing trends that you're seeing in the portfolio, whether it's the outlets and the malls are the other metals.
Yeah, I would say you.
You know generically that.
Well.
And I say this in it sounds hokey, but you have to create a win win.
But we are in a better position, we're in a better position today to negotiate what we think's a fair deal for US then we were the last couple of years. So we are absolutely seeing.
The ability to get what we think is a.
Fair market value in and the good news is given the occupancy cost.
Our retailers are.
You know where are you know we're getting deals done. So we're finding that we're finding that happy that happy win win.
Thanks, David.
Sure.
Okay.
Thank you. Our next question is from Greg <unk> with Scotia Bank. Please go ahead.
Hey, good evening.
So David there was a.
No.
A fairly substantial increase and month to month leases, increasing from one 9% five 4%.
Just curious you know what the primary drivers there were and what the opportunity is for <unk> or leasing knows potentially to maybe longer term leases well I think I think what you're seeing is the fact that we have some big account leasing.
That.
You know we are not rushing to do but.
In it in a thoughtful manner because we you know we would these are really good properties that are really important for the retailer and we're taking our time to get that done.
And that's really what you're seeing so whereas.
You know last year or the year before you might've seen a rush to get those signed up in in the door, we're taking a more strategic.
Broach a to create the kind of a win win that I talked to.
Mentioned earlier, so it's really part of our strategy.
And you know it'll it's my anticipation without question that number will be way down for Q Q2.
Okay. So this is just a daring negotiation phase increase but no kind of expectation for loss of those tenants and Nashville, all shifting to long term leases.
Absolutely not and was more of a.
Just you know decision on our side.
To you know to do to get the right kind of deal that we have with some of our larger national accounts. So.
No issue there.
Okay. Thank you.
Sure.
Thank you.
Next question is from Hayden. It is just with Mizuho. Please go ahead.
Hey, good evening.
Dave I'm going to ask you about I guess capital allocation, given where the stock prices now you put out the valuation discount have.
As you consider the debt market.
Would you buy back stock now and then in the same answer how are you thinking about acquisitions. There is rumored to be a very large seller out there. It's a pretty good malls. So just curious I'm under any scenario would you be a buyer of thumb.
Sure.
Well as I said to you earlier I mean, we we we we we got the authorization because we want to buy our stock back because.
Because we think it's undervalued so.
You know, where we because of the technicalities, we really can't get into the market until the 16th but.
This is not window dressing I expect us to be in the market and all I can say to you.
And.
You know I I really don't like to comment on.
You know like the the you know.
The stuff that's out there on M&A, but I would.
Throw caution no to all that I would suggest that please don't believe any rumors.
Or.
Media reports concerning our M&A activity okay.
There you know we are very focused on what I said, if you you'll see that.
If you if you want.
Or weren't able to listen to my prepared remarks.
You'll see kind of what I've said on on that front, we're really really focused internally.
And obviously.
Given where the stock has performed over the last a.
A couple of months I mean, we think it's an opportunity to.
Two two to be opportunistic in terms of buying our stock back so.
That's kind of I mean again, that's kind of how I, how I look at things. So don't believe what you read.
Or any rumors out there, we're really focused on growing our existing platforms and taking advantage of the opportunities that our lower stock price represents.
Great. Thank you.
Thank you.
Thank you. Our next question is from Glenn on Michelle.
Please go ahead.
Hi, Thanks for taking my question.
So could you. Please tell us what percent of tenants are now on a percent rent deals and how those tenants are performing in the current environment different at all.
I don't I mean every one of our retailers generally has a percent rent clause not every single one of them I mean, some of our big boxes in our department stores do not but all of our all of our small shop retailers, usually have some kind of percent rent aspect of the week.
So.
That's a high percent so that's number one.
And number two.
You know look.
So far you know we're in an uncertain environment.
Is it as a global economy are but what I would say to you just.
In general terms, so far from the from the better.
The higher income folks we have not seen any kind of slowdown there may be a little bit of a slowdown on the.
Now on the.
On the lower income.
Consumer obviously, unfortunately, the inflation is a huge issue.
And we need to do everything we can to you know to figure out.
As you know is a world in the country. They figure out how to you know how to deal with the.
You know the impact on inflation for the for the lower.
Income consumer, but we are not so far we're not seeing it in our portfolio.
Yeah.
Great. Thank you.
Sure.
Thank you. Our next question is from Michael Bilerman with Citi. Please go ahead.
Oh, great. Thank you.
David you talked a little bit about spending a lot of time internally, obviously leasing the portfolio I was wondering if you can update us a little bit sort of on the external front in terms of retailer investments or technologic technology investments I know you still have this back out there, which obviously that markets.
<unk> gotten a little choppy or but just how much time and what sort of opportunities are coming out of this macro environment for you to further you know moving this tanker towards a lot of those activities that you'd been planting the seeds for for a number of years.
I think Michael you know our spot we still have confidence in this back I mean, you know we have well.
Well, we have a clock running out, but we still have confidence that no.
There's a there's a there's a really good chance this basketball find.
It's a good opportunity.
The opportunity set clearly has increased given the market volatility I'm, even with existing public companies and we were smart enough to you know not.
Not do a deal probably at the time you know after we raised the stack that you know would have been at the at the market top so hopefully.
Our investors and that obviously.
Recognize that and remember this is immaterial for Simon property group, but but but but but I want I wanted to say that so on the external.
Fraud is matching to your earlier right now we are really focused internally now we're investing in all of the platforms that we have in our existing portfolio lots of redevelopment is it still on the drawing board and you know we're you know spa.
Park is making investments in its Texas Tech.
Technology.
Making investments those come from those entities, we don't have the fun those they're self sustaining you know penni now.
It has hundreds of millions of dollars of EBITDA. So so there they are funding themselves.
But right now our focus is.
What I mentioned to you before and you know look if we see an interesting add on here or there are bolt on four for one of our properties or or you know one of our investments you know.
You know maybe theres some capital allocation, but I think right now it's capital allocation I see is either to the shareholders.
Or you know to two.
To.
To grow our existing book of business.
Yeah, but just as a follow up just in terms of just understanding sort of the value to Simon and value for shareholders of all of these investments you've made on.
The board back in I think it was like mid mid February granted I think it was about $36 million to five senior executives and I think a little bit more to 18, others for the successful investment in a B G.
Now I recognize you haven't made money you've you've exchanged stakes you've invested more capital, but maybe just to step back can you sort of share a little bit at least at the time and group level. How much. These investments has made for which the board been paid the cash out to executives.
Well I don't even know how to answer that Michael well I'm not going to talk about comp on this call.
If you are an investor would like to talk to or Cop chairman.
No we're happy to arrange that for one of your investors directly I think.
What you're referring to is we've made a $1 billion on our a b G investment and.
That was kind of we were moonlighting.
It isn't that activity and and I'll leave it at that but thanks for your question.
Our comp committee, our comp Committee chair is available to any institutional.
Institutional investors and shareholders on the rationale for what they did but we'll move on for now.
Okay. Yeah, we've just been we got we got asked what the math with you.
Or like I said any institutional investor, we're more than happy to set up a phone call with our chair of our comp Committee. Thank you Michael.
Thank you David.
Yeah.
Thank you.
Our next question is from Vince Byrd.
Green Street. Please go ahead.
Hi, good afternoon.
Property NOI growth was up seven 5% in the first quarter, which implies you're expecting NOI growth to be only marginally positive for the remainder of the year based on the 2% NOI growth guidance you gave last quarter just given the.
Tracks will rent bumps and year over year occupancy gains that you should experience each quarter, what factors are negatively impacting the growth rate for the rest of the year.
Well I don't again.
It's a it's a completely appropriate.
A question and I. Thank you for that.
We gave guidance NOI guidance at the beginning of the year.
We were always trying to be conservative and we always hope to to outperform it.
We don't update it during the year.
But I have confidence based upon what I know today that we will outperform our our initial guidance obviously.
We have a little more variability.
That maybe are not yet and I don't want to over.
Dramatize this but we have a little more variability than maybe we did 10 years ago.
Because of you know the overage rent that we that that we know that we've structured I think we've actually structured are pretty smartly, but you know it does create a little more variability.
And that's our only.
That's the only thing that's out there.
You know to throw some caution to the wind what we see now you know we expect that we expect to outperform.
But it's it's you know we don't update it and it is an uncertain world.
But you know, we're working extremely smartly and diligently to outperform our initial.
Property NOI expectations without a doubt.
Maybe just kind of squeeze in a follow up I mean this is it.
How should we think about leasing economics here because you know you you till you took away the disclosure on the leasing spreads or is it a few quarters ago, which I think made sense given it but no longer really.
Paying a ton of useful information, but just because I think what I'm trying to get our guidance, implying that releasing spreads could be negative or like I'm, just trying to figure out what the pullback ear, there's expenses that get the variability portion but to your point.
Yeah really.
Yeah, that's all you're going to start to I didn't mean to cut you off you know not only is it.
It really does boil down to the sales part of the equation.
It's not we're seeing better rents than we anticipated.
And we are seeing look if you.
Again, I don't want to get into this and we tried to get everybody to do the spreads the way we did it but no. One was interested in really doing what we did if you really read the footnotes and I don't want to get into it but it's kind of it's comical.
You know what rent spreads are.
Words are different whatever it's not it's not really important point is.
The way you really see it as what you know is our is our portfolio NOI.
And that manifests itself with everything operating expenses sales based rent overage rent et cetera, the occupancy.
Our rents are firming.
Or if you really would do like just space the space our spreads are.
Basically it's positive.
And cause you know we went through a lot of pain and in the last couple of years.
And again.
Cause the Oak Ridge was really.
You know quite exciting last year, we just don't know if we can be as excited this year and that's why we're being a little cautious.
But we're off to a good start.
Thank you yeah. That's that's helpful. Additional color. Thank you Vince.
Thank you. Our next question is from Mike Mueller with JP Morgan. Please go ahead.
Yeah, I'm curious has your view on the pace or the magnitude of the occupancy recovery changed meaningfully.
Keep out for the next few years since the beginning of the year.
Yeah.
I would say to you if I if I understand your question I think.
You know we are.
Really happy at the pace of.
Or accelerating occupancy and clearly based upon last year.
Think we're ahead of where we thought we would be.
And I'm, hoping that to get the occupancy up to kind of where we were you know prior to the COVID-19. So.
I think I think were you know and I and what I mean.
Yeah.
Demand.
Again until the leases signed until it's a piece of paper until I get that first months rent.
You know it ain't over till it's over but yeah.
We feel pretty good and like I mentioned in the call I mean, our terminations were at the lowest level they've been.
In a long long time, and Oh deal Committee.
I think we've had a we have a well.
We we have a really good leasing group, they're energetic they're they're they're they're they're grinding away.
They're working I mean, it's a it we've we've turn we've turned our leasing group kind of.
Not over but we've added a lot of.
New talent to the organization.
And you know I think we're in a pretty we're in a pretty good spot. Assuming you know things are you know continue to be.
You know macro continues to be a reasonable I don't think we need.
Last year's results, but I just.
Don't underestimate.
I'm rambling on here, but don't underestimate that you know our.
Interest in our domestic portfolio is worldwide and as retailers of restaurant tours or entertainment operators.
They're you know, they're not looking at China, South America is a tough market Forum Europe as you know it's got the recovery play because of the Covid lockdown, but it's relatively flat obviously you got the.
The Ukraine issue, which is more there than here.
And so the growth for the.
Worldwide retailers is in the U S. We were not at the top of mind, three or four years ago that was China is here, it's happening and that's it so that's exciting.
Got it okay. So it sounds like the past couple of months really hasnt derail that at all.
No that was it.
Thank you.
Thank you. Our next question is from.
Linda Tsai with Jefferies. Please go ahead.
Hi, good afternoon how.
How are you thinking about distribution channels for the various brands within your spark platform, what's the best way to maximize the reach and visibility of these retailer investments.
Well you know they still love physical stores I'd say, if I you know what I think each brand is different so you know with.
With arrow, it's the physical stores and the e-commerce with with Nautica, it's stores, but wholesale business is very important Brooks brothers is a combination of e-commerce wholesale.
And stores Forever 21, the stores are really important that's the big differentiating factor it has compared to some of its peers on the other hand, it needs to improve U S. e-commerce business. So it really within spark theres different brands and it really.
On the brand but.
Don't underestimate and I think you know what we've seen since Covid I mean, let's not forget when we had cold, but everybody who said the stores are out of business no stores E Commerce.
Now what we're seeing is generally outperformance.
Hey, outperformance in the physical world less performance on the internet or or.
And that's not just for our brands, but across every essentially every retailer.
And then how does J C Penney fit.
And there is a distribution channel.
Well I mean, they have their stores in their ecommerce business I think the store businesses.
It's doing well and you know I think over time, they'll they'll improve their ecommerce.
Thanks.
Yeah.
Thank you.
Next question is from Greg Smith.
Bank of America. Please go ahead.
Yeah. Thanks.
Oh, David what percent of expiring rents in 2022 have been addressed.
Are you primarily working in 2023.
The ICSC leasing convention.
Yeah.
Well I, we would again I think you missed part of the earlier calls so I'd say to you by the end of Q2.
Well probably be in the 70, 75% range of all of our leasing activity for 'twenty two.
And I would say we are doing a combination.
At this point now you really more focused on 'twenty three deals, but we're doing a combination of finishing lease to get leases signed this year somebody open but a lot of them opened and for 'twenty three and then I think the primary focus on.
On at ICSC will be.
New business 23 business.
Great. Thanks.
Thank you.
Right.
Thank you. Our next question is from Juan Sanabria.
With BMO capital markets. Please go ahead.
Hi, Thanks for the time, just wanted to talk a little bit about investment opportunities external I I know you said not to.
Listen to what's out there in the press, but notwithstanding do you see better opportunities are which Simon would be more interested in the real estate company invest anymore and high quality malls or is the idea of maybe looking at shopping center real estate.
Kind of interesting given what we've seen in some of the changes with Covid and consumer behaviors.
Well I mean, that's the policy I mean, I don't I mean, our mall you know outdoor versus indoor our mall business is doing great. So I think that's a you know.
And I and I would say to you one good real estate could be indoors it could be outdoors it could be hybrid.
And they don't get carried away and the physical.
The physical plants are great real estate it could be a mixed use it could be an outdoor.
Center it could be a big in closed mall like Houston Galleria. So you know I know a lot of people spin it that way, but I will tell you good retail real estate can come in a lot of different forms a lot of different forms so.
We're not we're just I can't really answer the question because theres not one.
The project that were pursuing right now and.
You know I like I said earlier, we think the opportunities are greatest opportunities lie within Simon property group.
And just if I can a quick follow up.
Do you think your cap rate your implied cap rates around 7%.
What do you think high quality malls our R. R.
Valued at today, given the move in interest rates.
Just curious what your thoughts are.
Well I'm off valuations.
I mean, I don't know I mean, I I know I I wouldn't be selling our stuff at a 7% cap rate. That's all like I can only speak for myself.
Okay.
Fair enough. Thank you.
Thank you.
Thank you. Our next question is from Michael Goldsmith with UBS. Please go ahead.
Good evening, Thanks, a lot for taking my question.
Regional had still a lot on the outlook, but does the updated guidance consider any changes in expectation for the retailer investments for 2022, and then the 15 to 20 cents of additional investment expected for the year. What's the expected cadence is that equally distributed through the year or is that hitting harder in the first or second half.
Okay.
The first question is not really on the retail side, we're anticipating more or less if they come in on plan.
And then I didn't I didn't follow Brian did you understand the second part of the question could you repeat it please yeah, Michael Michael Yeah, sorry on the 15th.
Last quarter, you talked about 15 to 20 cents of additional investment expected Oh, Okay. He did the expected cadence of that.
Yeah.
That's think okay, that's what I thought, but I wanted to make sure so reebok closed spa.
<unk> bought the U S operations of Reebok at the end of February .
If I remember correctly.
And we think that will come out most of it.
It's kind of it's probably will come out in the Q2 Q3.
But it's not really it's kind of a work in progress of Windows operating losses will take hold they they they incur certain operating losses I should say day, we spark incurs certain operating losses as part of the deal and then their cap and it really just a function of windows com.
That it is but we know it's it's limited to kind of the number that I gave to you.
But that that that's probably a Q2 Q3 of that.
Okay, all right got it.
Ramp up Michael so they've got actually incur the costs yet to happen. So it's just going to take a little bit of time.
Okay.
Thank you. Our next question is from Floris Van Dijk them. Please go ahead.
Yes.
Thanks for taking my question.
David.
Maybe you touched upon the fact that your occupancy cost is low if you could just you know can you can you share that occupancy costs and also what was your your occupancy costs prior to Covid and how how quickly will you get back to.
Those kinds of levels in your view yeah. So are the number right now is $12 three what was it and that's what was what was.
None of that before Covid.
No it was higher than that that was higher but anyway. What gives me the number where it was pre COVID-19.
But I thought it was in the kind of the high 13 to 14 range, but we'll get you what was it 13 change 13 and change.
And look I I can't tell you how long it's going to take.
A function of it is just marking leases to market.
Yes.
But it it's it's it's it's fortunate for us and our retailers that they're profitable in our stores.
And you know yet at the same time.
We can mark the rents up to market and.
And be able to grow our business to show. So that's that's what we're trying to achieve.
Great and if I could maybe have a follow up as well. Obviously you you say that your your leased occupancy what is the gap between occupied and leased space right now and how do you see that trending.
Over the next.
A couple of quarters and presumably some of that the space could be anchors, which could be slower to get online. So is that is that gap always going to be remain steady or do you expect that to narrow over the next over the next 12 months I think Tom can give you the exact numbers later.
But I mean, both trends wherein the moving in the right direction. So.
No.
Tom to get you the actual numbers, but you know.
Both are moving in the right direction and I think that the gap between the two.
In a in a good market like we have now will will narrow.
Great. Thanks sure.
Oh, Okay, I think Oh, sorry go ahead Sir.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr.
Mr. David Simon for closing remarks, Okay. Thank you and.
I'm sure we'll see some of you in the next few weeks. Thank you.
Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.