Q2 2022 Simon Property Group Inc Earnings Call
[music].
Greetings and welcome to the Simon property group second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
And answer session will follow the formal presentation.
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Please note that this conference is being recorded I will now turn the conference over to your host Tom Ward Senior Vice President of Investor Relations you may begin.
Hello, and thank you everyone 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.
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, and actual results may differ materially due to a variety of risks uncertainties and other factors. We refer you to today's press release, and our SEC filings for a detailed.
Question on the risk factors relating to those forward looking statements. Please note that this call includes information that maybe accurate only as of today's date.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's form 8-K filing both the press release and the supplemental information are available on our IR website at investors that Simon Dot Com Our conference call. This evening will be live.
At the one hour for those who would like to participate in the question and answer session. We ask that you. Please respect our request to limit yourself to one question I'm pleased to introduce David Simon. Thank you. Please to report our second quarter results second.
Second quarter funds from operations were $1 $1 billion or $2.96 per share prior to a noncash unrealized loss.
My sense from a mark to market and fair value publicly held securities. Let me walk you through the big variances.
For this quarter compared to Q2 of 2021.
Our domestic operations had an excellent quarter and contributed 13 sensor growth driven by hydro higher rental income of nine cents strong performance and Simon brand ventures, and short term leasing or five cents.
<unk> contributed four sets of growth and they were partially offset by higher operating costs of approximately five cents or international operations posted strong results in the quarter and increased 10 cents lower interest rate.
Interest expense contributed three cents and these 26 cents of positive contributions were partially offset by.
The headwind from a strong U S dollar of <unk>.
And a 19 chat lower contribution from our other platform investments principally from J C. Penney and a couple of brands within spark these costs.
Include these included costs associated with JC Penney launch of new brands. The recent Reebok transaction and the integrated integration costs associated with that and a softening of sales from our value oriented brands due to inflationary pressures on.
On that consumer we generated $1 $2 billion in free cash flow in the quarter, which was $200 million higher than the first quarter of this year and we had generated $2 2 billion.
For the first six months of the year domestic property NOI increased three 6% year over year for the quarter and five 6% for the first half of the year portfolio NOI, which includes our international properties grew four 6% for the quarter.
And six 7% for the first six months occupancy at the end of the second quarter was 93.9, an increase of 210 basis points and T. R. G was at 93, 4% the number of tenant terminations this year.
<unk> has been at record low levels average base rent.
Rent increased average base minimum rent increase for the third quarter in a row and it was at $54.58 leasing momentum accelerated across our portfolio. We signed nearly 1300 leases for more than 4 million square feet in the quarter.
<unk> signed over 2200 leases for more than 7 million square feet through.
Through the first half of the year and we have a significant number of leases in our pipeline nearly 40% of our total leasing activity in the first six months of the year has been new deal volume. This is up approximately 25% from last year.
Retail sales continued.
<unk> sales volumes for the second quarter were up 7% our reported retailer sales per square foot reached another record in the second quarter at $746 per square foot for the malls and the outlets combined which was an increase of 26%.
$674 for the mills, a 29% increase T. R. G was it a thousand $68 per square foot a 35% increase.
We are.
Began our national outlet shopping day, which was very successful for shoppers and participating retailers offering a timely first of its kind power's shopping experience more than 3 million shoppers visited our premium outlets and mills.
<unk> over the shopping weekend feedback following the event has been tremendous from both our retailers and consumers.
Already planning next year's event, which we expect to be bigger. So please stay tuned on on that our occupancy cost at the end of the quarter are the lowest they've been in seven years 12, 1% in Q2 of 2022 now or other platform.
Investments, let's talk about it we were pleased with the results of our.
Although our investments in the platform for the second quarter. They contributed approximately 21 cents in F F. Though even though we were down from last year's to resist terrific results.
Primarily as I mentioned continued investment and the inflationary pressures.
That are that have developed based on our distributions.
Based upon our cash distributions received.
We have no cash equity investment in spark and J C. Penney and in fact, we have parlayed our spark investment.
Into our investment in AP and a b G that is now worth over $1 billion, there will be a little more volatility from quarter to quarter. When it comes to spark and J C. Penney, but please keep in this in the proper perspective, it's all upside.
From here during the quarter. We also as I mentioned had a mark on our Soho and lifetime Holdings of five cents. A reminder, on that it's a noncash mark and we would expect that those.
Those are companies would bounce back we completed the refinancing of 14 property mortgages. During the first after the year for a total of $1 $6 billion at an average interest rate of 375%, we reduced our share of total indebtedness by more than six.
<unk> hundred $50 million and once again, our balance sheet is strong we had $8.5 billion.
Of liquidity $8 $5 billion today, we announced our dividend of $1 75 per share for the third quarter a year over year increase of 17%. This will be payable at the end of the third.
Third quarter September 30th.
During the quarter, we repurchased one.
4 million shares of our common stock for $144 million.
And let me point out while other companies in our sector are paying little or no dividends.
And issuing equity.
We are repeatedly raising our dividend and buying our stock back we have now returned more than $37 billion of capital to our shareholders since we've been public $37 billion.
Given our current view of the remainder of the year, we are increasing our full year.
2022 comparable F S O guidance.
From $11.60 to $11 $11.75 per share to the new range of $11 70 211.
And 77 cents per share.
Which compares to a comparable number of last year of $11.44 per share. This is an increase of 10 cents at the bottom end of the range and six cents at the mid point of the range.
<unk> comes in the face obviously of a strong U S dollar rising interest rates and the inflationary pressures that are.
Are out there in the marketplace. So let me conclude I am pleased with our second quarter results. Our business is strong with a higher income consumer is in good shape brick and mortar stores, where the shoppers want to be.
Outpacing e-commerce across the world and our broad retail spectrum demand for our space is extremely strong.
Worldwide retailers need to grow and they're doubling down on the U S.
International Tourism is returning domestic tourism is strong our redevelopment pipeline is growing with exciting projects and her addition to our newly announced premium outlet new developments and expansions we are experienced at managing our.
Our business through volatile periods, including leveraging our existing platform for operating efficiencies.
Allocating capital appropriately managing risks.
We are not over our skis in any aspect of our business I encourage you to look at our track record.
We outperformed in these kinds of periods and we also do some of our best work as well. So thank you operator, we're ready for any questions.
Well at this moment.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from Craig Mailman with Citigroup. Please proceed with your question.
Hey, its actually Michael Bilerman here with Craig Good afternoon, David.
David I was wondering if you can talk a little bit about sort of that inflationary pressure. That's on the retailers that you know you're starting to experience firsthand and obviously your knowledge base of the retailer environment is significant but now actually being on both sides. What can you do with the landlord to help your tenants through this period of time.
Time, where they are dealing with a lot of inflationary pressures and more inventory because arguably I know you know from a landlord perspective, you want your rent to inflate and that just makes matters worse. So can you just talk a little bit about the things that you can do to it.
To take share and really leverage what you're learning on the retailer side for the benefit of share of shareholders.
Well.
Michael for that question. So look we're not we're not presumptuous to tell any retailer under any circumstance how to run their business. So it's really.
You know entirely up to up to them on how they see fit out and manage inventory etcetera, and just our own experience within spark we have several brands.
And we did see.
Some softness.
The more value oriented brands.
And.
And again, we do think that pressure on the consumer with respect to housing.
Obviously gas and they and they range it in but again I think the important thing to keep in mind, Michael is even with that said when we were profitable we had an unbelievably.
A strong year last year with <unk> and <unk>.
And spark we're still projecting.
Really high EBITDA.
Growth for these companies and even though they're obviously their consumers being cautious back to school. So far is off to a good start our traffic is actually pretty pretty good and I think you know just from our own operating experience.
You know the spark management team and a penny I think do what a lot of retailers do you know they rein in.
You know they rein in discretionary capital they they watched the overhead.
They really don't close stores because stores are profitable to them they watch marketing expenses.
You know that you know the.
The paint there theyre very focused on the payback when it comes to return on investment.
Digital with digital.
Spending so I you know I think the J C Penney and spark team.
You know it.
We will do kind of similar to what others, but we would never.
We would never tell retailer and what they should do it.
If they want to compare notes, we're happy to do that but that's just not our style and again.
And we tried to do.
It's really important.
Yes, Arthur business that we're in it's not are you know, it's a very small part of our business units.
It's under 10% at the end of the day.
We have no debt.
Yeah. So.
So I've got I'm just talking.
Cash on cash return, let's go simple math.
I've taken distributions to cash distributions in both spark and penny.
Basically has me at a zero on that investment.
And it will you know don't have volatility with New Orleans like any other retailer and you know that's just the way of the world.
And it's all upside frankly.
These businesses are and importantly, and this is very important and they're very well positioned there.
We're very well positioned to weather.
If this continues which we kind of expect it to they're very well positioned to weather any storm because as a simple example, JC Penney is compelling three on liquidity.
Just just to just to throw that out there.
So I hope that answers your question.
Thank you.
Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey, good afternoon, good afternoon out there.
David a question on following up on the the retailer platform income the NOI this year with like $116 million in the year last year was $195 million. So is this some of the volatility that you're talking about and just curious what drove.
That mark.
If I can do a footnote for sort of quasi second question, you mentioned something about the value brands in your retailer platform, having trouble, but the other brands were doing well, maybe just a little bit more comment on that yeah look Alex It was 19 <unk> for the quarter. So we can spend a lot of time on it.
But the reason I went through with you guys because.
Yeah.
We have no we have no cash investments in these businesses. So I'm happy to go through it but let's put it in perspective. Please the point is.
Yeah, So, let's just talk about spark spark nautica.
Brooks brothers.
Lucky did Greg above that above that just Eddie Bauer, but above budget.
So on the only.
The only softness we really saw was a little bit in the teen market in Aero.
A little bit in that.
And the fast fashion business in F 'twenty one.
And a little bit in J C. Penney.
And we also as well.
We told everyone at the beginning of the year.
We had significant integration costs at spark with respect to the <unk> transaction.
So so that so and obviously that close and we saw some of that in the second quarter. So that's that's the status everything. We also had a management change. It's F 21, which we think will be put to better that happened I believe at the beginning of the year, we've got our.
We also had our new CEO .
Which also happened last year, so they're absolutely greatly position, we got all the confidence in the world.
And it's a retailer and there'll be ups and Downs 19 says added $2 96, Okay. That's.
And no and no investor no cash investment Okay. So I think I answered it but if there's something you'd like me to dwell on more than I did all I'm happy to do well I guess, that's the one question right. So it's over right go ahead Alex.
Because I like to go ahead, what else you got.
Okay, well then I'll ask you one other question you guys were always financially savvy in your buyback stock.
I'm imagining that buying back debt is not attractive just given where your outstanding debt coupons are or has the disruptions in the debt markets given you opportunity to buy certain pieces of paper well. We unencumbered you know the reason we have lower interest expense.
It's because we unencumbered assets, we have that flexibility. So we don't like the mortgage market. Unlike some others, we just write a check.
And we haven't that's why we have lower interest expense.
<unk> the last year and like I said, the Q O Q, because we could write a check and just unencumbered.
Costs at a lower cost, but we look at that all the time and that may not be buying that back, but it's more or less the same thing and then the same resolve.
Thank you.
My pleasure.
Our next question is from Steve Sochua with Evercore ISI. Please proceed with your question.
Yeah. Thanks, Good afternoon, David I was wondering if you could provide a little bit more color on the leasing pipeline. It was nice to see the occupancy up as much as it was from Q1 to Q2, but could you talk a little bit more about the pipeline the types of tenants and.
You know when you sort of look at the demand you know if you sort of were to try and bifurcate you know the portfolio maybe by by sales you know I guess, how different is the demand for the really strong centers versus maybe centers in the middle and the lower end of the portfolio.
Well again, you know our.
Lower end is.
It's just not you know just to get it. It's a good question because we don't put these numbers in but you know our EBITDA weighted this excludes T. R G, but our EBITDA weighted sales.
$954 a foot.
Our average base rent actually increased 70 basis points.
At $73 41 versus 70 287.
So you know and that's what's driving a lot right because it's the bigger property. So yeah, you know look.
It is across the board it's also cros.
The retail its restaurants its entertainment.
It's obviously the high end folks, but it's all and I don't like I don't like naming retailers.
You know Rick does but you know it always bothered me and he's not here to do it so.
But you know we have value oriented retailers that are on a on a on very much aggressive opening.
Opening a program so it really is across the board.
You know only the best the best properties get the get the high end folks, we're seeing a big rebound in Vegas a floor.
Florida is on fire California's finding its sea legs.
Westchester and Roosevelt field are all coming back as the suburbs. So Midwest has been stable. So we're seeing it across the board by retailer.
Like by price point by geography by mix pretty much across the board.
And.
You know what I mean.
It's not really granular than you probably wanted names, but you know and we have not seen thankfully.
Even with.
You know that.
With with what's going on in the World, We really haven't seen anyone back out of deals.
Of note at all and and I and I said this last quarter I said it this quarter in my prepared remarks.
You know the U S is the well, let's hope the U S. We don't screw it up but the U S is.
You know the bastion of growth for the world.
Compared to you know because we know China as you know.
With the way Covid has dealt with there that that's going to that's gonna have absent flows and you know I think our economy is still pretty healthy.
Consumers in good shape.
You know I think I think the growth will continue in the U S.
And I think I think the future is bright.
Yeah.
Okay.
Our next question is from Adam Kramer with Morgan Stanley . Please proceed with your question.
Hey, David and good afternoon, I, just wanted to drill in a little bit more on capital allocation. You. Obviously raised the dividend here again with active on the buyback in the quarter and just a couple of months.
And you all put out these kind of press releases as well about some other kind of a new and renewable development projects. So I just wanted to kind of maybe here you kind of maybe maybe rank or just kind of discuss the different options for capital allocation here and you know I'm trying to external growth is it's always maybe an option as well you talked about it last quarter, but maybe if you could just kind of rank the different options here with you.
Capital in excess free cash flow.
Well look as a REIT it'll always be.
The dividend.
But.
So that would you know I mean, its hard to me to rank them, but I think.
Clearly the dividend.
You know you have to pay out 90.
You know to 95% of our taxable income there's a difference if you pay out 90 type of thing, which is 95 and you got to pay out 95% of your taxable income.
We're fortunate to be high.
Really.
You know we have taxable income, so where we pay out close to home.
We're at 100% of our taxable income that's growing so that can be paid out in cash. Obviously, you know we've modified that twice in our history.
Well one was COVID-19, obviously, when we were shut down.
And two was in the great recession.
So that always will ranked number one two is.
Our stock is just.
We look at other rates, we look at other S&P 500 companies, we look at our balance sheet. We love. The fact that we're a cash flow company that generates cash return on equity we make deals like spark that gets all our money back and we have free cash flow.
We can't figure out our value so the reality is.
Market.
We have refuted e-commerce, taking the malls down.
We have we're still with Covid.
Our business is strong growing in the enclosed mall business.
And the enclosed mall business is strong yet you know we have naysayers out there that don't believe it but we believe it's our stock is cheap for everybody to keep buying stock back.
And then I think we have a duty.
To make our properties as well as efficient and as and.
As.
You know as attractive as we can to the consumer I mean, obviously, we have to do it with a remind you.
You know we have to deal with it with a.
With a return on investment.
Methodology I E. If we had a property and we spent all this money on it got no return or we wouldnt do it but where we can do that that's what we should do and we will do that.
And then the external stuff I don't really care about you know.
And then you know if it has.
It's there and it makes sense, we'll do it we have the flexibility to do it but I'd, rather do the dividend by our ridiculously cheap stock back.
Make our existing portfolio are better and then every once in a while we'll have.
Great New development to do that we'll do it because that also is a core competency of ours.
With that we.
We will do and that's that's how I look at it.
Yeah.
Our next question is from Derek Johnston with Deutsche Bank. Please proceed with your question.
Hi, everyone. Good evening.
Yeah, So on real estate Phipps Plaza <unk>.
Slated for an October open or relaunch, let's say so David I believe you took roughly a million in NOI offline to develop.
So you know upon stabilization now what NOI contribution from this project is expected and really should we look at this as one of the key earnings accretion blueprint.
Looking ahead with other mixed use projects. Thanks.
Yes. Thanks, Thank you.
I'm happy to focus on real estate and.
Look I mean.
It fits us fantastic story because.
You know, we took an old department store it had.
Bell She was an underperformer had 14 acres, we couldn't redevelop it we're going to spend around three.
$350 million and we're going to get about a $35 million of NOI just on that on that but more importantly, well I shouldn't say more importantly in addition to that.
And Ah you know eventually we'll show everybody, what we did but we the leasing momentum.
That we have created there in.
In terms of re Canadine releasing phipps.
Is staggered so phipps you know again.
We don't really disclose that but my guess is the existing.
Property will increase by roughly <unk>.
30% NOI when we're done with it if not more.
Without you know without that not including the incremental investment I just mentioned.
Because of all the re tenant them and more importantly, we will have.
All of the best brands, when we're done with it and that's ongoing that will all be done probably until 'twenty for.
Because some of the other existing retailers have leases and they are coming over after that but.
We're taking a.
No a quiet mall and making it going you know and it's going to be I think the hub of activity in a great area in Buckhead.
And a lot of good stuff happening in Atlanta at the same time, but.
But yes, the simple answer to your question is I would hope to do that in Bray.
Ross Park you know.
Go down the list, but yeah, we have we have a.
10 of those opportunities and.
The mixed use.
Most of our real estate is really well located.
And you know the adding the mixed use components, especially residential really does add a lot of.
Synergy a lot of a lot of Mojo to the property. So we hope for that to continue.
Thanks.
Sure.
Our next question is from Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, David hopefully an easy to partner for you but.
How is the broader economic environment adjusted process for adding projects to the development pipeline and how the increases in construction costs and labor shortages impacted our pipeline returns and timelines.
You know, let me talk timelines if the only the thing.
Biggest issue that we're having on timelines is in what I'd call in May.
Restaurant industry.
And that you know some of the equipment required to open restaurants does have a backlog.
The E.
Storefront improvements is increasing.
Obviously tenants are very very focused on that not affecting timing.
But it is something that we're watching.
It has not affected deal flow or deal economics.
And I do think the good news when it comes to you know at least materials.
You know we are we are at a lower level than we were a few months ago. So on the timing side.
Side, it's really just.
Equipment for restaurants.
On our return development.
Not not nothing you know yeah, we have a little bit more here and there, but nothing that is going to you know.
Ultimately decide to go from a.
Our gold project to a torn academically if anything.
And a lot of these cases, we're planning on higher income so they seem to they seem to be getting basically the same returns, but we're not we're not nothing has changed dramatically that would.
Suddenly scratch a project.
If I could just add just real quick to that what about now that you have a.
Lower price stocks and investment in the stock versus redevelopment expense.
So do I.
I think we can do both.
I think we've and again I mean some of these things.
You know, we we really want.
Folks to focus on others in our sector you know.
When you put us in perspective, you know.
We're buying stock back we're not issuing equity.
And we're raising our dividend I don't there are very few and then you can define the sector anyway, you want and I don't want but there's that Fannie.
<unk> built a little bit differently, even though.
We may we may be in the same.
Industry, we were built differently, okay and.
So so that that's the important point and that's why we really tried to emphasize that much like we.
Spark about some of the.
You know mathematical differences about our company beyond just all were in the same business.
It is math.
End of the day, you got to you got to run your business. So the math works.
But yeah, I like buying our stock back, but you know like I said I do think we have a duty to continue to invest in our portfolio as long as we see the right return on investment on that.
Thanks, David.
Sure.
Our next question is from Michael Mueller with J P. Morgan. Please proceed with your question.
Yeah, Hi, the year over year ADR per square foot Competere G.
Pretty strong at about a 5% is there anything out of the ordinary driving that.
Oh.
No I, just think we've worked well together and.
I know.
The portfolio is in great shape and.
You know him and I'm driving now and.
And we're driving growth out of out of it collectively so it's all good.
Yeah.
Okay. Thank you thank.
Thank you.
Our next question is from Florida, and I come up with Compass point. Please proceed. Please proceed with your question.
Thanks for taking my question guys.
Last quarter.
You indicated you're signed not open pipeline was around 200 basis points I believe and it was a little bit higher in the malls than the outlets I was curious if you can give an update on that and also maybe David you've got you've got these retailers are you you know everybody's been talking about a glut of inventory.
Will you create outlet stores for some of your retailers and where else are you seeing some of the demand for the outlets coming from is there more luxury potentially that's coming to the outlets or homewares or where or what other Ah Ah segments. Do you think we will expand into the outlet business.
Well I'll, let Brian answer the well that was very clever to get two questions.
But like Brian to answer the first and then I'll take a shot at the second part, Florida, We're still hovering right around to 200 basis points are in in the second quarter.
And that's going well and then I would say.
You know there's no I mean, there are some of these big big retailers had a glut of inventory.
The luxury guys do not have a glut of inventory okay. So they're there that's not happened.
And you.
You know to the extent that.
Okay.
The spark brands by and large are already in the a lot of outlets some of ours.
A lot are not ours, there's really no change in plan you know maybe theres been a few you know some of the brands not just spark, but elsewhere out of few pop ups, but.
Absent flows I don't think forced theres any real.
An interesting dynamic going on that.
You know and Theres not theres not a lot of folks with a glut of inventory as far as like as far as I can see I mean, yeah, obviously, some bigger bigger folks, but most of those guys want to flush it through the existing system.
And there is no the higher end folks theres no glut of inventory that we see.
Okay.
Thank you Sir thank.
Thank you.
Yeah.
Our next question is from Vince T Boni with Green Street. Please proceed with your question.
Hi, Good evening could you drill down a little more on sales trends during the quarter did start to slow down at all in the back half of the quarter the inflation accelerated in recession fears of increased right.
No no not not really.
So it was.
I mean not not.
Not really we didn't we didn't really in fact in July and a lot of cases, we saw we saw you know a little bit.
Better results recently, so you know.
No no real trend there Vince.
No I think that's good to hear that's helpful. And then just maybe one follow up to that are you seeing any difference in tenant sales performance between the higher end and luxury tenants versus the more made three brands, presumably the latter would be more impacted by inflation issues.
I would absolutely you know, we we definitely have seen.
That.
You know, where the where the value oriented retailers or.
No.
There's no question the consumer.
Hum.
It was pressed on discretionary income.
Is dealing with a very difficult situation.
With food.
Right.
Crude obviously gas you know Ann and dwell, so and and you know they.
There they are reining in their their spend so there's no question about that.
But where we're and where but we haven't really seen that.
At all.
Yeah, and you know kind of the better brands and.
Like I've mentioned earlier spark I don't like the Brooks brothers. The last piece of the world are doing very well, but where you do see it a little bit as you know in the you know a month and the value oriented retailers.
Or or the younger consumer.
Suddenly.
As you know we've taken a lot out of the other their pocket pocketbook.
Great. Thank you I appreciate it thank.
Thank you.
Our next question is from Craig Schmidt with Bank of America. Please proceed with your question.
Great. Thanks.
Domestic same store NOI was up three 6% compared to 7.5, it looks like a lot of it was due to the tougher comps in second quarter and in that case. It seems like the comps only get more difficult third and fourth quarter or is that.
Why the same store number might actually be going down for the second half of the year or is it the macro factors.
No I mean, Craig.
We were really clear, we're actually outperforming what we thought you know we you know Q1 of.
Q1 of last year had the big benefit of.
Going up against Covid right. So.
We were really.
Really clear what we saw overall and we've been outperforming and you know I think we will outperform our initial guidance of 2% but.
But but that's.
Nothing nothing other than that.
Or normal seasonality of the business better.
Yeah. I mean this is good this is better than our plan and is consistent.
With our plan, even though the trend is above our plan.
So did your leasing year to date. If you will is strong enough that do you think that.
The continued in July .
And do you think you can continue despite some of the macro factors.
Well I said that several times, yes, the answer is.
Where are we have not our pipeline is as strong as it's been.
We're doing a bunch of new deals now Craig you know when you sign a lease the store doesn't open tomorrow and a lot of cases.
And this is really really important for everyone to understand we're very optimistic.
There's a lot of the leasing that we've done really doesn't open until 'twenty three 'twenty four so not only are we outperforming our budget this year off a strong last year.
We actually feel really good that as we get these stores open that we leased to over the last six to nine months that you know that will continue to fuel positive comp NOI.
Thank you Craig.
Thank you.
Okay.
Our next question is from Michael Goldsmith with UBS. Please proceed with your question.
Good evening. Thanks, a lot for taking my question on the guidance. The low end of the range has come off the high end relatively flat at a time when youre seeing softening of sales your lower income brands. So my question is what's implied for the performance of the base business in the second half kind of relative to what you saw.
On the domestic and international operations in the second quarter or maybe said another way how sensitive is your performance to the macro environment and what's the outlook for percentage rents.
Well, it's a very you know look I think we feel.
Really positive about.
The portfolio.
Results that will generate from the portfolio.
And again the.
The.
Higher income consumer it is.
Still spending money and if anything.
I think if you go back in history, and actually Tom did a very good piece on that if you're interested you can call Tom.
I'll go through with you our business and our industry actually tends to outperform.
During recessionary environments, if to the extent that we get there and maybe where in one maybe we're not I'll stay out of that political definition.
Primarily because the you know the big ticket items.
Suddenly go toward kind of what we sell at a profit so.
And that's a position that's kind of a somewhat of an insurance policy.
And its historically always proved to be.
You know very you know very positive so even in every recession other than COVID-19.
When we were told to shut down our cash flow from our properties was flat it did not decrease.
So Tom has a great paper on it you're interested we'll charge you, but we'll we'll give you the data.
I think the same case, you'll be here you know.
If if we do get into a full blown recession, our cash flow will be positive you won't maybe grow as high as well.
I have some exposure on sales.
But we do see you know the big tickets kind of go away and they move toward you know move towards the items that we sell on our properties.
And again and I think he asked something about spark.
You know again, it's really just a couple of the brands. It's also going against a great year.
Again, let's have a bigger picture view of that business.
Okay.
Thank you.
Our next question is from one centerbridge, yet with BMO capital markets. Please proceed with your question.
Hi, good afternoon.
Just wanted to ask with regards to the month to month leases that are still on the books are a little bit higher than the historical average.
Should we expect that to stay there are you still comfortable kind of account for higher rents or how would you think.
Current context.
I think.
It's more a function of documentation then.
Then dealmaking and that we don't put that done until it's signed.
And a lot of our bigger renewals have been done over the last two or three or four months.
And all of that's been documented so I would expect that that number would continue to go down but we have no.
We have no fear in that number.
Thank you.
Thank you.
Our next question is from hornbill St Juice with Mizuho. Please proceed with your question.
Hey, good afternoon.
Dave I guess a question on a follow up on the seasonality of NOI first half of this year.
Second quarter, NOI, but lower than the first quarter based on supplemental from both periods, which is unusual.
Our operating expenses impacting our typical seasonality and what's embedded in that sense I got profit this year.
Yeah, we I didn't we didn't gather your first question.
Could you. Please repeat it took quite a bit on the impact of seasonality and the sequential NOI for <unk> look lower than once you.
Which is unusual and so a vaccine asking how.
Operating in Cleveland I think.
I don't I don't.
<unk>.
Yeah.
Yeah.
Yeah, I don't I don't think the NOI was lower quarter over sequentially quarter over quarter, but we did we do have.
A lot of companies had in overage rent in the first quarter, because there are leases and.
In January 31.
So you know you pick.
Pick some of that up in <unk> and in Q1, but that's that's not a you know that.
That would be the only reason.
And on Opex, but any color on how it might be.
Impacting seasonality what are what's your expectation or somebody with 2% same store NOI.
And.
Yeah.
Again, I'm sorry, with your connection is really not so good.
We're not really seeing much inflation just yet in operating expenses as you think about US we've got long term contracts that protect us from material increases.
Yes, we did increase our operating expenses five SaaS.
We did hit a negative five cents for the quarter again.
Okay.
Our next question is from key then Kim with Jewish Securities. Please proceed with your question.
Thanks, just a follow up on the handoff question.
Your NOI from safety on an H B S. A also increased pretty significantly into Q over Q1 on the screen are curious about how much of that is sustainable run rate.
Well my perspective, more if there were some one time items.
Well no.
Claims here that were shut down last quarter. So.
This is kind of more now I mean last year. It. This quarter. So this is there is still not firing on all cylinders. So we'd expect future growth here, so comparing to Q.
Two of 21 compared to Q2 of 'twenty two.
<unk> to 'twenty one.
They were under a lot of restrictions and in some cases closed.
At H B S is so small it's.
You know a 10 significant.
There is not real there's no real change there.
It's a it's a lease.
It's the least that pays a certain amount of rent every month. So it's there's no very little growth.
Yeah, you know other than the normal step ups very small.
So the changes she meant sequentially.
Yeah.
Actually I actually meant sequentially increased by I think $10 million or so.
Ah well you know we did a restructuring so you know.
That's.
That's.
That's part of it.
And they're doing better quite honestly, they've announced their golf and strong results. So I think youre seeing that starting to come through our results as well.
Okay, and I'm not sure if I missed it or not but any kind of commentary you can share on what the lease spreads look like in <unk> and given that you are close to 94% occupancy as you continue to increase is that what kind of pricing power do you expect to gain when you start to reach 90.
596% occupancy.
Rats are all moving in the right direction.
And our spreads are moving in the right direction too.
Okay. Thank you.
Thank you.
Our next question is from Linda Tsai with Jefferies. Please proceed with your question.
Hi, Thanks for taking my question.
On the guidance original guidance with domestic NOI of 2% growth and year to date and five 6%. So is there any update to the 2%.
As we've said for several years, we do not update that.
We give you our best guess.
At the beginning of the year, it's all part of our plan, we disclose what we think the number is what we do not.
Updated.
Quarter to quarter other than.
As we've said.
We're pretty confident we're going to beat our initial expectations.
Got it and then can you talk about what you're most focused on from an ESG perspective in 2022, and you know what are some initiatives, where we might see some progress.
Well, we I mean that as you.
You know I don't have enough time to go through it.
But obviously, we're it's across the enterprise.
You know.
And obviously from an operating point of view.
A lot of it continues to you know to be focused on reducing our carbon footprint, but.
And giving back to the communities, which we do them.
A lot of different ways, but it's.
That's a it's a very that's a very long please read our report.
Don't have it there's a link I'm sure.
Tom can give it to you but it's.
It certainly it certainly.
Focus on you know the big item is focusing on reducing our carbon footprint.
Thank you.
Thank you.
We have a very slight oh I'm sorry.
At the end of the question and answer session and I will now turn the call over to Mr. David Simon for closing remarks.
Okay. Thank you I believe that's our allotted time so.
Thanks for ever.
These questions and any any follow up please.
Call, Tom and Brian Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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