Simon Property(SPG) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Real estate FFO was $3.05 per share in Q3 2024, a 4.8% growth compared to$ 2.91 in the prior year [9] - Third quarter funds from operations were $1.07 billion or$ 2.84 per share, compared to $1.2 billion or$ 3.20 per share last year [10] - Domestic NOI increased 5.4% year-over-year, while portfolio NOI (including international properties) grew 5% at constant currency [13] - Malls and Outlet occupancy reached 96.2%, a 1% increase compared to the prior year, with The Mills occupancy at 98.6% [14] - Average base minimum rent for Malls and Outlets increased 2.3% year-over-year, and The Mills increased 4.5% [14] - Retailer sales per square foot were $737, up approximately 1% year-over-year, with total sales volumes up 1.5% [16] Business Line Data and Key Metrics - The company signed approximately 1,200 leases for 4 million square feet in Q3, with over 3,900 leases signed year-to-date, expected to generate more than$ 1 billion in revenue [15] - SPARC and J.C. Penney recorded sequential improvements in comp sales during Q3, setting up well for the holiday season [19] - The company's OPI (Other Platform Investments) underperformed due to cautious spending by lower-income consumers, particularly affecting Forever 21 and Reebok [18] Market Data and Key Metrics - The company opened Tulsa Premium Outlets at 100% lease and expanded Busan Premium Outlets in South Korea [17] - Development and redevelopment projects are underway with a net cost of $1.3 billion at a blended yield of 8% [17] - The company's digital marketplace, ShopSimon, was rebranded and expanded, leveraging a shopper email list of over 25 million customers [22] Company Strategy and Industry Competition - The company focuses on improving the merchandise mix and re-merchandising centers, rather than solely focusing on rent increases [27][28] - Construction costs have risen 60% since pre-pandemic levels, limiting new supply and benefiting the company's position in the market [29] - The company is investing in mixed-use developments, with a pipeline of around$ 4 billion, including over $1 billion in residential projects [34][35] Management Commentary on Operating Environment and Future Outlook - Demand for retail space remains strong, with a broad spectrum of tenants showing interest in the company's portfolio [7] - The company raised its dividend to$ 2.10 per share, marking a 10.5% year-over-year increase and returning to pre-pandemic levels [23] - Guidance for the full year remains at $12.80 to$ 12.90 per share, excluding non-cash losses from Klépierre exchangeable bonds [24] Other Important Information - The company amended and extended its $3.5 billion revolving credit facility and issued$ 1 billion in senior notes with a 4.75% interest rate [20] - Refinancings of 14 property mortgages were completed, totaling approximately $1.3 billion at an average rate of 6.13% [21] - The company ended the quarter with approximately$ 11.1 billion in liquidity [21] Q&A Session Summary Question: Leasing momentum and pricing power [26] - The company focuses on improving the merchandise mix and re-merchandising centers, rather than solely focusing on rent increases [27][28] - Construction costs have risen 60% since pre-pandemic levels, limiting new supply and benefiting the company's position in the market [29] Question: Development and redevelopment pipeline [34] - The company has a pipeline of around $4 billion, including over$ 1 billion in residential projects [34][35] - Mixed-use opportunities and anchor replacements remain a focus, with significant potential for growth [34] Question: Omnichannel experience and customer engagement [41] - The company emphasizes the mall as a unique gathering place and is investing in digital initiatives like ShopSimon to enhance the omnichannel experience [42][45] - Digital commerce accounts for 14-15% of total commerce, with potential for further growth [45] Question: ShopSimon and logistics [50] - The company sees potential in last-mile distribution and is exploring opportunities to integrate logistics into its retail centers [51][52] Question: Occupancy and NOI growth [86] - The company expects continued momentum in NOI growth, supported by leasing activity, capital investments, and limited new supply [87] Question: Acquisition opportunities and development spend [91] - The company remains open to acquisition opportunities but is being selective, with a focus on high-quality retail real estate [92] - Development and redevelopment spending is expected to remain around $1.5 billion annually [96] Question: ShopSimon progress and logistics [98] - The company is making progress with ShopSimon, leveraging its 25 million email list and adding loyalty programs to drive growth [100] Question: Domestic NOI growth [102] - The company is seeing strong momentum in Domestic NOI growth, with further details to be provided in the next earnings call [103]