Thank you for standing by, and welcome to the Q2 2021 Simon Property Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference is being recorded.

[Operator instructions] I would now like to hand the conference over to your host, Senior Vice President, Investor Relations, Tom Ward. You may begin..

Thank you, Lateef (ph). 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 Reuille, Chief Accounting Officer.

Before we begin, a quick reminder, that statements made during this call, may be deemed forward-looking statements within the meaning of the Safe harbor of the Private Securities Litigation Reform Act of 1995. 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 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 today's date.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com.

Please note, our 8-K filing is still in process with the SEC. However, it has not yet been accepted to date. In the meantime, as mentioned previously, the 8-K has been posted to our website.

Now, for those of you 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 and one follow-up question, so we might allow everyone with interest the opportunity to participate. For our 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 properties is increasing. I will turn to some highlights. Our profitability and cash flow have significantly increased. Second-quarter funds from operations were $1.22 billion, or $3.24 per share. Our domestic operations had an excellent quarter.

Our international operations continue to be affected by governmental closure orders and capacity restrictions, which cost us roughly $0.06 per share for this quarter compared to our expectations due to the equivalent of two and a half month of closures.

As we said in the press release, our quarter results included a non-cash gain of $118 million or $0.32 per share from the reversal of a deferred tax liability at Klepierre. We generated over $1 billion in cash from operations in the quarter, which was $125 million more than the first quarter.

And additionally, compared to the second quarter of last year, our cash flow from operations was break-even 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 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, entrepreneurs, restaurateurs, and mixed-use demand, ever so increasing day-by-day. Our team is active in signing leases with new and exciting tenants. The average base minimum rent was $50.03.

Our average base rents was impacted by the initial lower base rents we agreed to in addressing certain tenant COVID negotiations in exchange for lower sales breakpoints, if variable rents that were recognized in the first half of the year were included, it would add approximately $5 per foot to our average base minimum rent.

Leasing spreads declined again due to the mix of deals that are now included, as well as the activity that has fallen out of the spread, given its rolling 12-month nature and metric. New leasing activity that has affected the spread include large footprint, entertainment, fitness, and large-scale retailers.

These boxes -- big-box deals, reduced our opening rate as they are all included in our spread metric. As a reminder, the opening rate included in our spread calculation does not include any estimates for percentage rent-based income based on sales, as I mentioned just recently. Leasing activity accelerated in the quarter.

We signed nearly 1400 leases for approximately 5.2 million square feet, and have 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 six months of 2019. We have completed nearly 90% of our expiring leases for 2021. We recently had a deal committee.

And what I'm told by my leasing folks is that that was the most active deal committee that they've had in several years. Now, retail sales continue to increase. Total sales for the month of June were equal to 06/2019, and up 80% compared to last year. And were approximately 5% higher than May sales.

If you exclude two well-known tenants, our mall sales were up 8% more than compared to 06/2019. 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 our third outlet in France. At the end of the quarter, new development - redevelopment was underway across all our platforms. For our share of $850 million, our retail investments posted exceptional results.

All of our global brands within SPARC Group outperformed their budget in the quarter on sales, gross margin, and EBITDA, led by Forever 21 and Aeropostale, SPARC's newest brand, Eddie Bauer, also outperformed our initial expectations. We're also very pleased with JCPenney results. They continue to outperform their plan.

Their liquidity position is growing, now $1.4 billion, and they do not have any outstanding balance on their line of credit. Penney will launch several private national brands later this year, as well as their new beauty initiative. Taubman Realty Group is operating their 2021 budget at a level above debt and above our underwriting.

And their portfolio -- our portfolio shows resilience as sales are quickly returning to pre-pandemic levels. Year-to-date through June, retail sales are 13% higher than the first half of the 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 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 6.9 billion available on our credit facility, and $1.9 billion of cash, including our share of JV cash, and again, our liquidity is net of $500 million of U.S. commercial paper that's outstanding at quarter-end. Dividend.

We paid $1.40 per share of 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 on September 30.

You will know that going forward, we are returning to our historical cadence of declaring dividends as we announce our quarterly earnings. Now, guidance.

Given our results for the first half of the year, as well as our view for the remainder of 2021, we are increasing our full-year 2021 FFO guidance range from $9.70 to $9.80 per share to $10.70 to $10.80 per share. This is an increase of $1 per share at the midpoint, and the range represents approximately 17% to 19% growth compared to 2020 results.

Before we open it up to Q&A, I wanted to provide some additional perspective. First, we expect to generate approximately $4 billion in FFO this year. That will be approximately a 25% increase compared to last year and just 5% below our 2019 number.

To be just 5% below 2019, given all that we have endured over the last 15, 16 months, including significant restrictive governmental orders that force us to shut down, unlike many other establishments, is a testament to our portfolio and a real testament to the Simon team and people.

Second, we expect to distribute more than $2 billion in dividends this year. Keep in mind, we did not suspend our dividend at any point during the pandemic and in fact, we have now increased our dividend twice already this year. Now, just a point on valuation, and I tend to never really talk about it, but I felt it was appropriate today.

Our valuation continues to be well below our historical averages when it comes to FFO 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, and the REIT industry by a 150-basis point.

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 a balance sheet to support our growth. We are increasing our performance, profitability, cash flow, and return to our shareholders.

And we're ready for questions..

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

Thanks. Good afternoon, David. I wanted to just start on the occupancy trend, which was up pretty nicely from 1Q to 2Q. And you talked about the leasing activity that you had in the quarter in the pipeline.

Could you just maybe share with us what your expectations are for occupancy by the end of this year, and what's embedded in the guidance?.

Well, the guidance is affected by the continuing uptrend. We expect our occupancy by year-end to increase from the levels that we have right now.

I don't have a number that I am going to give to you specifically, but as I mentioned to you, Steve, talking to my heads of leasing, we are -- maybe this is an overstatement, we're tickled pink by the demand by the new retailers and tenants that are surfacing.

The many, many opportunities that we have with restaurants, with the mixed-use developments, and I mentioned to you, our deal committee had more deals than it's had in a few years. Look, we still have a hole to dig out of, because of the bankruptcies that we had to confront, with the pandemic.

But I'm very pleased with the activity, the mojo that we have in leasing the work that our personnel are doing there. The creativity, it's pretty encouraging..

Okay. And maybe just as a follow-up, just on the leasing commentary. I know that you guys had to make some accommodations to the retailers and you lowered the base rent and took more percentage rent.

Given that sales seem to be coming back very quickly, do you sense that that dynamic is changing at all as you’re having these current discussions about future leasing? Or do you still anticipate having to have a kind of lower base and take more upside going forward?.

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

We bet on the rebound, and we're seeing the benefits of that. And as I look back, I'm not certain I would change a lot.

And the reality is, there is always going to be a few handful situations where we'll bet on to come, bet on retailers because we have confidence in our properties, we have the confidence in the retailers that we're doing business with.

And I think physical retail, when I listen to the pundits, and they're throwing the baby out with the bathwater, read my lips, physical retail is here to stay. And people really like to shop in the physical world. Don't believe everything you hear on TV. We've got the evidence..

That's it for me. Thanks..

Thank you..

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

Good afternoon, David. And hope -- I guess you guys have had a really good -- not, I guess. You guys have had a really good quarter, just amazing to see guidance up by a buck. But continuing on Steve's question there. Amazing on the dividend rebound, amazing on the guidance, on the leasing activity you guys talked about, and everything is good.

But when you think about people pulling out the negative, and believe it or not, David, people do look at some things in the negative limelight, they will see negative 22% re-leasing spreads, and that negative spread is widening. I understand that you did deals to get the Company through, makes sense.

But from an expectation standpoint, what would you think the cadence is over the next few quarters of this spread, and how do we relate to that versus the cash flow growth and everything else that's going on? Because, clearly, there's a disconnect between your cash flow recovery and this negative spread metric?.

Yeah. Look, I -- Alex, stats don't mean as much to me as they do to you because I look at cash flow growth. Because there's a lot that goes into cash flow growth, a lot more than spreads. Now, the sole reason that the spread is down to 22% is because of the mix and the COVID deals that we did.

The mix is that we -- the spread probably was higher than -- because we had a lot of boxes that rolled out that were low rent, and so we got the benefit of that. And now as we -- and those were out of our 12-month numbers. And now, the new leasing that we're doing is in it and that's the sole thing.

So, I would encourage our investors that know what we're all about to understand that it's a mix. If I do a deal with Dick's or an entertainment box and they paid $15 a foot but the expiration of that box was 15 months ago with $3 a foot, I still may have made a $15 spread. But because it was in our rollout 15 months ago, you don't see it.

It's not space by space. If I get to space by space, the trend would not be -- the percentage would not be anywhere near that. So, do you understand what I just explained? Remember, we had a lot of boxes that were pre-COVID at low rents. 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. I do. I wasn't about to volunteer Tom, rehash for a space-by-space. But I do understand what you're saying..

This is not space by space. But the reality is if I add boxes that were -- that space that I got back that was at low numbers but they were 15 months ago, those closings is gone. So that really jerks up the number. And then I have the new lease that's at a low number, that jerks it down.

But if you really compare it over a longer period of time, we've got a positive spread.

Follow me?.

Yeah, it makes total sense. The next topic, David, obviously --.

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

No, I can see the math as evidence in the earnings growth, the cash flow growth. You've explained it well so that when understanding this, that explanation that it's not based on space-by-space makes it crystal clear what's going on. The next question is on the rising of COVID Delta, and whatever other variance there are out there, obviously.

Facts of life. But you're seeing tremendous leasing demand, restaurant demand, et cetera. Your malls and outlets are throughout the country.

Is it your view and what your managers -- mall managers are saying, and tenants are saying, is that most people just accept COVID 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 increased activity that we've seen this year?.

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

So, as you know, Delta, to our Delta hotspots, we actually have malls in some of these hotspots. So, the land of the Ozarks is in Springfield, Missouri. You only know that through the Netflix Show, right? The Ozarks. Because you haven't been there, but I've been there. And it's a wonderful place.

But I checked Have we seen it in our battlefield ball, which is in Springfield, Missouri? Have we seen an uptick in COVID cases at the mall? We get the report from all the retailers and our staff. And the reality is, we haven't. The mall is safe. Even though we're starting to see counties talk about indoors, there's no science about the mall.

I underline that. We've been mistreated in this whole 18-month ordeal, but it is what it is. I personally think, now going back to your question, And I've checked it. In Florida where there are some upticks.

We have not seen in an enclosed mall an uptick in COVID cases for the people that are in the mall, the staff, whether it's a retail or a management team, period, end of the story. No question about that. So, I personally think that people are just going to deal with Delta. I'm hopeful that people will get vaccinated.

We're not going to mandate vaccines; we're going to encourage them. And I think we've got to keep being safe as possible going on with our lives. And where we need to mask up, we're going to mask up. And I think the consumer and the folks have all just dealt with it and are moving forward in that environment right now.

So, I'm hopeful that as a country we don't get into these lockdowns they have produced. We -- I studied Sweden, I studied France, COVID reverts to the mean. Sweden did not lockdown, France did. And if you look at the chart on COVID cases, it all reverts to the mean; lockdown, no lockdown.

So let us do our business, mask up if you need to, the mall is safe, next question..

Thank you, David..

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

Good afternoon, David. I want 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 got a pretty healthy increase in that line item, which obviously includes Taubman along with the retailers.

I think it went to around 348.5 million versus 15 million the last quarter despite depreciation amortization, looking like it's approximately flat year-over-year. That suggests 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 and what you're seeing there and what's driving that beyond what you said in the prepared remarks?.

Well, we're always transparent. That'll be in our queue. But we have our Klepierre deferred tax gain running through that. We have our retail investments running through that, or the two major pieces of that increase. And then obviously, positive operations in all of our joint venture properties.

And that's really at Taubman because we've had that lunge through that as well, but we also have increased depreciation and amortization associated with it. That's a not-overly material in that big increase.

Fellas, what else do we want to say? That's it?.

That's it..

Okay. Fellas agree with my assessment..

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

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

Yes, we should outperform that..

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

Thank you..

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

Great. Just 2 quick ones. One quick one and maybe one a little bit longer. The first one, just on the dollar increase, can you just break that down to just some major buckets? The buck increase to the guidance of about 380 million.

I would assume part of its $0.32, the deferred tax liability that you booked this quarter, which leaves another $0.68 unaccounted for. Maybe if you can just bucket it into like maybe retailer investments, core, and others would be helpful..

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

Yeah, because your original retailer investment was like $0.15 to $0.20. It would appear that you may have blown through that just in this quarter.

So that's what I was just trying to get a little bit and they -- that one's a lot more volatile, right?.

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

Right. And is a [Indiscernible] supporting the line..

I mean, that's the retailer multiples, maybe retail is core.

I don't -- what's a core? What's non-core?.

That's a longer discussion. The second question, David, is, given your perspective now, as a, obviously, you've been a landlord forever, but you're increasingly now getting your hands dirty at being a retailer.

I'm curious what you're seeing from the retailers that you own 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 your tickled pink. If you're seeing it as a retailer, that must be a different description that you would use.

So maybe you can talk a little bit about what you're doing on the retailer side to bring people into the assets, what type of promotions are you trying to lure people to brick-and-mortar, and just the whole omnichannel world with the retailers you own.

I'm just trying to understand that relative to your time as a landlord?.

Well, you're right. That's a long -- if I did that question justice, it would be a long answer. Let me just say this, and this is really important, the retailers that we bought, if we didn't buy them, would be gone.

So, I'm most proud -- forget about the numbers and what it's meant for us financially, but we're most proud because we basically kept companies alive that otherwise would be dead, buried, and liquidated.

And what we found out is, you know what, if we just focus on the business, focus on cash flow, focus on the consumer, we could stabilize this business, have patient money, patient -- not worried about comp from one quarter to the next. We could turn those around.

And I'm most proud because, I should know, maybe Brian knows but, our SPARC operations employ thousands of people. And then when you add Penney, you've got well over 50,000, 60,000 people. Don't underestimate what we've done. We're not -- these were companies that were, frankly, roadkill. and we save them. And for that, I'm very, very thankful.

So that's one. And then, I think, Michael, generally and -- I can get into this in more detail, it's just too much to tell you now. I'd say 2 things. One is the store is credit.

If you talk to the retailers that run these businesses, and in our case in particular, because most of these companies didn't have the capital to invest in the Internet and the omni-channel. We're taking it at the store level, okay? So, these are really turned in to be good physical store operators.

Now, Eddie Bauer is more sophisticated in E-commerce than some of the other ones that we got when we bought them. But the store is a really, really important component that gets in today's world. For what -- it is what it is, gets overlooked.

And I'd say we've also had a great partner in ABG that adds a lot to the marketing and know-how about sourcing that was very important to what we have. And then Brookfield has been a terrific partner as well and adds a lot of value. They're in some deals, they've been converted in others, but they've been like us.

What do we do that's right for the business? How do we keep these companies alive and prosper level-headed discussions? They're all the rest of the stuff. Omnichannel, clearly, is very important to the future, but these companies are basically surviving and prospering because of their physical footprint, not because of e-commerce..

I would say if I have a vote, and I know you probably wouldn't give me a vote, but on the retailer versus core Simon earnings, I do think there's a difference. The market can ascribe what multiple they want. You're in a -- you have leases and contracts, retailers on the other end of just a different business model..

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 I said I don't want to -- the market is going to tell us where, but at least having all the details of the components, I think it's just a very helpful piece of information that the street can earn. And then we can get into an argument about how things should be valued, but not having the individual pieces in a clear and concise way.

I don't think allows us to have that conversation. It becomes a little bit more adversarial..

We got it. We understand the issue. But at the end of the day, we'll see the level of materiality to it, and we'll see if it makes sense. We've got partners in there as well. But I don't think -- well, let's -- the market is the market. I have to respect it. We hear what you're saying..

Okay. I appreciate the time, David..

Thank you, Michael..

Have a good one..

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 the lease termination fees..

I would say we're really down to a couple of folks, and it's really caving way, way down. Everybody has lived up to there, basically, COVID deal. I would say, right now, other than 1 or 2 folks, it's really business as usual and how do we do business better, how do we grow our business, how do we do things more strategically.

So, I think -- I am hopeful that that whole unfortunate -- it was tough for us. It was tough for them. We're all dealing with the unprecedented sequence of events. I think it's all behind us. Our collection rates are in the back to normal, and yes, we've got 2 or 3 folks that are still out there.

But if we -- if they stay out there, it is what it is, and we can't -- we'll -- we're moving forward, so it's all pretty much behind us, assuming there's nothing that we had to deal with like we did last year..

Got it. Okay. And then maybe just a quick one on the other income, both the lease settlement income was up decently in the quarter and also the bucket for other income. So, I was just wondering if you could give some detail on these few 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 is -- we had a significant increase in our Simon Brand Venture business, which is that probably the bigger grower of that number..

Absolutely. Caitlin, it's Brian. If you -- we saw a pretty substantial increase in Simon Brand Ventures, our gift card business, and some of our mall 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 make a lot of sense? Clearly, Northgate never skipped a beat. And now, Phipps Plaza really looks like it's back on track.

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

Sure. You're right about Phipps. We're basically all systems go there. We expect to finish everything by the end of '22, which would be the new Class A office, Nobu Hotel, Life Time athletics. So, it's all going back. You're right. We did shut it down during COVID. We commenced -- we restarted this, I don't know, two, three months ago.

We want to approve some of the stuff earlier, but we really are finishing the projects. So that's -- that'll be really -- I'm really excited about that. So hopefully we'll be able to show you that and be something really proud of. And I would say we're really -- we took a hiatus of 12 months, more or less. Brian, right? 12, 14 months.

So, we're back at it. I think I mentioned the last call, we're probably, in some cases, decreasing the amount of maybe new retail space. But we're back at it and it's more mixed-use than ever. The demand on the mixed-use front has been really, really nice to see.

And just to name a few that were in the permitting process would be Brea in Orange County, we've got Stoneridge in the Northern California area just to get the permitting process going -- restarted. Some of those things we have to start again because the plans different.

But the idea to redevelop, a lot of them are the old department store boxes that we got back or that we ended up buying. We're going. The plans maybe a little less grandiose, so to speak, but it's very active on that front, across the board. So, we look for more and more of our pipeline to increase as we go through the betting process.

And I think with the Taubman portfolio, you're right. There's a lot to do there. They didn't -- they -- I keep saying they, but we don't have a lot of empty boxes there. That was -- so there's not like the plethora of opportunities that you might otherwise think.

But there are some, and we're working -- we're working those as well and its great real estate, great location.

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

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

Okay, great. Thank you. And I guess just my follow-up will be a quick follow-up to this question.

Is the 13-story Class-A office building, is Life Time coworker and anchor tenant there? Did you sign them? Or have you pre-leased any of this space that gave you the confidence to move ahead? Or are you just moving ahead because you feel better in general?.

Let me be clear. Life Time is its own separate building. It's actually built on top of a world-class food hall that we're doing with C3. And inside Life Time athletic, they will have their own co-working. The office building is on its own. It's not -- there's no leasing the Life Time on that. It's 13 stories.

We're building it spec, though we just signed our first 90,000 square foot lease. 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, you'll have recovered half of the loss from your previous peak on FFO per share.

I'm wondering if, as you work on creating 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 a quarter-over-quarter?.

I'm just --.

Not really -- I didn't really -- I don't think anybody understood your -- your connection's not that good, Craig.

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 FFO per share. Thinking about the second half, is that going to be harder to recover or easier..

If you go quarter-over-quarter, I would just say, and I'll let Brian and Adam weigh in. But we had the brunt of COVID abatements and relief of defaults in Q2 and Q3 if I remember correctly. The comparison to Q3 of '21 compared to '20 should be a pretty big gap for -- like Q4, we had dealt with most of the stuff.

If that's your question, I'm not sure I really, maybe, comprehend it completely. But if that's your question, hopefully, that answers it..

Great.

And then just -- do you foresee any changes in the REIT rules that might allow you to grow your retail or some of your other businesses beyond previous limitations?.

Well, that's hard to know, Craig, I'm hopeful. There are limitations. You're right, 100% right. There are limitations. And I'm hopeful that the folks that do legislate this stuff will understand the benefit that we've provided to basically working families because we've saved these retailers. So yes, there are rules that make it complicated.

They should be less. Remember, our retail investments are in a taxable REIT subsidiary. If you look at our P&L, you will see a big tax expense. Correct, gentlemen? That's associated with the fact that our TRS is taxable, and we're paying the corporate tax rate at its full level.

And then when you look at the -- hopefully, the benefit of what we've done for these companies that otherwise would not exist frankly, that the folks that write legislation will see that this is really an arcane rule that was around a long time ago.

And there's a real benefit to try and keep retailers and others alive to try and create employment and all that good stuff that they do in the community. So, I am hopeful, but there's no certainty on that..

Understood. Thanks..

Thank you, Craig..

Our next question comes from Floris van Dijkum of Compass Point. Your line is open..

Thanks for taking my question. David, I have a feeling of Deja vu, what we've seen this picture before following the great financial crisis. Obviously, things are different of course, but it seems like we're reliving those times a bit. Maybe if you can -- my question to you is -- it's regarding tenant sales.

Again, the key lifeblood to your malls and the key to the, obviously, to the retailer profitability too. Very encouraged by your statement of retail sales in June equaling -- in your portfolio equaling 19 levels and up 5% from May.

Maybe if you can give some more breakdown in that, particularly as it comes out of the first quarter, and also did I hear you correctly? Did you say that Taubman sales were 13% ahead of ' 19 levels?.

Correct, yes..

Does that --.

I mean, it's a good number. Look, I do think we all deal a force in a very tough predict -- it's really hard to make any predictions. But I think what it should tell all of us is that, and I said a little bit earlier, physical shopping is -- people like to physically shop. We are, by no stretch of the imagination, hitting on all cylinders.

We still have tourist centers that don't have tourists, other than domestic. We have parts of the region that were slower to open up, i.e., California, than others.

And I just think the most important point is that people like physical shopping, and, listen, you hear it all the time and I'm sure you get -- Your clients ask you, well nobody shops physically anymore and you try to defend it.

Or you'd say, "Yeah, but what about this? What about that?" I think we're just -- we're showing that it matters to the consumer and to these communities. And hopefully, that will continue. And it is -- I will say this, maybe getting to your question, it is across the board. So, it's -- yes.

It's the luxury retailers, but it's also Aeropostale, which the AUM is -- I won't tell you, I'm not allowed. I don't know if I'm allowed to tell you, but the AUM is lower than what it might be for a luxury retailer. Okay? So, it's just Forever 21, which has a lower AUM. So, I think that's just encouraging. Hopefully, the trend will continue.

But I think the consumer likes the idea that they can go to a physical shopping place..

Great. And if I can follow up, I guess, I wanted to -- you talked about the fact that your lease spreads are not -- they're not space-for-space, like-for-like. I wonder if you had that.

And also, what is the impact if you have -- if your average sales get to 19 levels, what's the impact on the effective rent that you would be getting relative to the reported rents that you've talked about?.

Well, I think the easiest way to do that, I mean, that's a complicated number because you've got to go retailer by retailer. We did for the first six months. And our estimate of what our base rent would be based upon -- we got the benefit. There's $5 more base rent had we not lowered our breakpoints due to the COVID reliefs.

So that gives you an indication of an interesting stat if that's maybe it's of interest to you. So, I don't --.

Have you --.

So, I can't really give you a number off the top of my head. It would just be a guess and I really don't want to do that on what it might be. And then again on the spreads, it's not space by space. A lot of people, and I know the burdens on you and the analytic community, but I'd 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 rent of acts and they think they're going to be in percent rent. They include that in their spreads. We just -- it's all in and all out, mix matters because of these boxes I explained to you and you know what? It will manifest itself in the cash flow.

And the big cash flow growth story that we have going forward is sales growth and put sales growth and occupancy growth, and SPB growth, getting that back to normal. That's the big story. And then lease -- so the spreads -- the spreads -- yeah, I could do a bunch of boxes.

The spreads can look not as good as you had looked historically, but the reality is, Mike, cash flow went up because that was vacant space and it's already out of the spread calculation. Focus on cash flow growth, is the bottom line..

Thanks, David. Appreciate it..

Sure..

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

So Q2 looks like it was about 292 without the reversal. And if you look at the 1075 guidance, it implies about a 250-a - quarter average for the balance of the year.

What was the level of the number of incomes that won't recur into the back -- no, sorry? What was the level of income in 2Q that won't recur going forward?.

I'm not sure..

Say that one more time, Michael.

Can you go through that question again, please?.

Yeah --.

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

There is -- but the only thing that's non-recurring, we will always have certain non-recurring things every year, lease settlement income, sale of an income-producing property. These things always ebb and flow. But the only thing that is not going to recur is the deferred tax. That's a one-time gain, clearly articulated in our press release of $0.32..

What about prior period collections, were there any in there that were significant?.

No, they wouldn't come through the P&L either..

We saw no recovery, Michael..

Yeah..

Got it. Okay. Thank you..

Thanks..

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

Hi. Good afternoon. It seems clear that variable rent is growing in the portfolio.

I'm just -- could you help frame how much this is shifting? As for the leases you are negotiating today, what is the split between contractual rent and the expected variable rent component? And how is that different from before the pandemic?.

Well, look, I think that the answer -- the simple way to say this is that if we have -- if we are willing to bet in some cases, on the prospect of our property and our retailer.

And to the extent that they are cautious because of what they had to deal with as well, we're willing to accept the lower base rent in some cases, if we get an artificial upside in other cases. And it's not anywhere near the majority. It's only dealing with certain cases, certain lease rollovers.

And again, those lease rollovers happen let's say on average, we have 12% a year that rolls over. Now, last year, we had more, only because we dealt with bankruptcies, which in theory, when you're in bankruptcy, all of your lease’s rollovers 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 at the height of the pandemic, and they were cautious with their plan. But we made artificially low breakpoints to make some of the income back-ups with the sales set.

I would say going forward, we are pretty much back to the normal way to do it, which is trying to get the appropriate base rent and a natural break over that to generate percentage rent. And I will --.

Got it..

-- 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 tours, and we're still not seeing that. Obviously, tourism dropped during the last couple of years pre-pandemic, strong dollar relationships with countries, et cetera.

I won't go through all that stuff. Then we had the pandemic and the restriction. So, one of the unique things that I think and I hope, not knowing Delta or anything else, is how it's all going to play out.

But at some point, in the not-too-distant future, we're going to see really good growth in our high-quality tourism centers, which should manifest itself in additional percentage rent. We have yet to see that for primarily our outlet, but also our Vegas properties as well. We're like a forum shop..

No. Thank you. That's a really helpful color. I mean, it sounds like the lease structure is more temporary versus the secular shift towards more available rent. So, I appreciate the color there. One more for me, maybe just shifting gears. I mean, you were fairly active in the mortgage market in recent months.

Just was hoping you could provide some color on the recent trends there and just the ability for both you and other than the industry to get non-recourse financing on high-quality malls today..

I'd say it's significantly improved, but not easy. Not a day at the beach. Retail is still -- look, I think a quarter like this, 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 an unsecured market for us and we don't necessarily need the mortgage market. Sponsorship is really, really important. But it's dramatically improved, but it's not where it needs to be, where it should be, and where it has been..

Yeah, that makes sense.

If you had to draw, maybe, a line with them for sale per square foot or quality in terms of being able to get debt, is there anything you already want to throw out there?.

Look, I think we've done the pentagon cities of the world. We've done those in a really good solid mall in a not [Indiscernible] town. It's tougher and it shouldn't be because the stability of that cash flow is frankly pretty good under our management and ownership. So -- but often to -- like we did domain. We had old real estate parlance.

We over-financed it. The Pentagon City of the world is fine. But if you have that traditional mall and a smaller market, even though it's really good, really solid, really stable, still is more difficult than it should be, in my opinion..

Interesting. Well, thank you for the time..

Sure. Thanks, Vince..

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

Thanks. Good afternoon. Can you talk about the retailer investments, the 195 million of NOI? I would've thought, you would have gotten that type of level of income towards the fourth quarter. You've just given us the seasonality that that's inherent in retail.

So, I'm just trying to think about that compared to your previous guidance of 260 million of EBITDA, and should we expect a similarly strong quarter in the fourth quarter, or is there something unique that happened this time around?.

Well, again, remember, this is all -- you're right, you're 100% right, in that like traditional retailers, a lot of it is back-end weighted. We budget the same way. We way outperformed our first six months. It's hard to know exactly what it will be in the next 6 months.

But we budget to ramp up too, Ki Bin, so we'll see whether we're on a 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 would appear like a one-time item or anything like that?.

Other than dramatic outperformance. That was what's unique about it..

Yeah. No one-time items [Indiscernible] perform..

Yeah..

All right. And what are your latest thoughts on acquisitions? It's a bit ask out there how that compares to your internal hurdles, just any color you can share on that..

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

Okay. Thank you..

Sure..

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

Hi.

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

Well, that's like there's no standard answer other than to say we are, if they buy online and pickup in-store, that sale goes through our lease, that sale goes into our sales calculation. 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 the comps have trended for your retailer investments the past couple of months as maybe it relates to 2019 levels?.

How the retail -- how our retail investments did to '19?.

Yeah, like a same-store sale..

Yeah. I would say, generally, above '19, except for JCPenney because they really were not in bankruptcy in '19. We're still having bankruptcy. They went into bankruptcy in 2020, early 2020. They had a lot less unaffected year. We're still below ' 19 levels, but the rest of them are above ' 19 levels pretty, pretty handsomely..

Thanks..

Sure..

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

Hey. Good evening, out there..

We're out here..

I wanted to come back to leasing for a second. Clearly, the industry has gone through some changes here in the last year. Few shorter-term deals are being done. Percentage rent deals are a bit more prevalent. I guess I'm curious, as you look at the U.S. mall business here over the next year or two, and more especially in the 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 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 seeing what you are seeing, the tone of the conversations, what your thoughts are on there, and maybe some color on the average change in lease term here being signed in the portfolio the last couple of months..

The term hasn't changed all that significantly. I would -- look, I would say that I don't think there is a big fundamental shift. When you tend to go short-term, it's because you can agree on what you think the fair market value is. And so, you do a short-term deal. And, again, there's some cautiousness from the retail community because of the pandemic.

But, I think, assuming we get over this, I think it's -- we're going to see long-term deals. We also use short-term deals to our advantage because one is, we may be testing on a new concept, one is, we don't like the rent that the retailer is offering, so let's keep that retailer in there while we go find a better long-term tenant.

There's redevelopment, we want to move people around. There are all sorts of strategic reasons to do short-term leases. But I think that's -- the simple straightforward answer is I don't think that the fundamental nature of our business has changed in terms of long-term leases.

Listen, the retailers if they are investing in the store, the better retailers want long-term leases because they want the right, they want the store to look good, they want their personnel to be there. They don't want to go through different personnel. Personnel at the store levels, know when leases are short.

And when leases are long, they're more committed to that Company. there is motivation 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, that the short-term leases are de facto the new industry. I just don't see it.

No retailers going to invest in a store without long-term leases. And all the better retailers. All with a good physical plan. All want to put in their omnichannel capabilities and they're not going to do that on the short-term lease..

I got you and I appreciate those comments.

I was just trying to understand that if you have any concern on your part by perhaps the lease exploration schedule that's building up here, over the next couple of years, with some of the shorter-term leases that have been signed over the last year or two, adding on top of the normal lease expiration schedule, especially in that 2023 to '25 period in which you'll be anniversary again.

I think some tougher comps from leases signed 7-10 years ago..

Yeah. Look, I think, again, because of the quality of our portfolio, I'm not concerned about that. The reality is, we may be negotiating from a position of better position because our properties look great. Sales are great. People -- a lot of the physical retail has dissipated in the markets where the action is.

So, we've made those bets all the time, that we're going to bet on the future. And if we don't -- we can't make a long-term deal. We make it short because we're betting on the future and we've been right more than we've been wrong in those bets. But we're not always right.

But 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 these leasing spreads, understanding that that's been impacted by some of the leases you are doing with the lower-percentage rent thresholds, I guess I'm curious. When you provide --.

It's a little bit of that, but it's primarily the mix as I'd say -- as I've stated. And again --.

Okay..

-- it's not straightforward spreads..

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

I mean, we could -- let me just say this, we could paint an unbelievably good picture there, but we just put all the stuff in, and the number is the number. So, if we went space-by-space, if we did it over a certain period of time, if we -- there are 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 McGinnis of Scotiabank. Your line is open..

Hey, David. Hi, team. I think one of the key concerns for investors today is the potential longer-term drag from lower-quality assets, maybe at least not if they remain primarily retail.

How are you thinking about investing, or maybe not investing, in the different quality bands within your portfolio to extract the most long-term value from those assets?.

Really not much of an issue for us. It's a de minimis number and it's like any other Company. If you have a profitable business, maybe you don't invest in it if you don't think the growth is there and you meet the cash flow.

But if investors are concerned about that, my initial reaction is we should do a better job of explaining the quality of our portfolio, and the depth and breadth of our business. So, we 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 being a real concern. If that does happen, it's on the margin. $0.03, $0.05, something like that. So, anybody that's concerned about that, please call me, Brian, or Tom. Or you can set it up and we'll walk them through the asset base..

All right. Appreciate that. Could you possibly touch on maybe how the operating performance differs between the higher end and the lower end? We used to get those NOI weighted numbers, which were helpful, but just curious how that performance is going today..

I have them -- they're pretty -- I have them somewhere. Yeah, let's see. Basically, occupancy in the EBITDA weighted is 93 to 91.8. And average base minimum rent is higher, obviously, but the spreads about the same, and the total rents about the same. And sales are rolling 12, or pretty consistent on a percent basis.

But the rolling 12, when you can't -- remember, rolling 12, we have 3 months of downtime, so it's irrelevant. But the most important number is occupancy and it's a little bit better..

Okay. Really what I'm trying to understand, and what others are trying to understand, is whether or not there's any need for a higher level of dispositions post-pandemic or maybe just as the retail market evolves, and how the portfolio is coming to address them all..

We've got -- we've always been selling. We just sold the residential thing at a -- like a below sub-4 cap rate. There are a couple of retail properties that we've earmarked for sale. Markets are not quite there. We'll see what happens. Thank you..

All right. thanks..

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

Hi. Just wanted to hit on the guidance question again because it seems like you guys have outperformed expectations on the retail side on your investments, but the guidance implies that de-sell kind of x the one time from Klepierre.

Should we just think that that is just conservatism built-in for the second half, given the volatility on the retail side? Or is there another reason for the sequential implied decline in the back half from a clean second-quarter run rate number?.

Well, look, I think all I can tell you is that we have beaten our first quarter, our second quarter. We hope to beat third and we hope to beat the fourth, but we're in the midst of the third and we're in the midst of the fourth, and we'll see how it -- how it shakes out.

But we feel, as I mentioned to you earlier, we feel pretty good as to where we're positioned..

Just to a follow-up is just in terms of mall operating hours. Are those back to pre-pandemic levels and if not --.

Yeah. It is -- yeah. That's a good question. They're inching back toward it, more or less. We may be an hour short on -- excuse me. We may be an hour short on Monday through Wednesday, but basically Thursday, Friday, Saturday we're pretty much back to normal..

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, in some cases, the retailers like it. It's something we're always monitoring and it's -- there is -- it's a very interesting subject because some retailers love it somewhat, more hours to go back. It gives me a headache when I think about all the different opinions.

But it's pretty much back to normal, maybe an hour short in the early part of the week..

Thank you..

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

Understood. Thank you..

Thank you..

Thank you. At this time --.

No, go ahead, Operator..

Yeah, at this time, I would like to turn the call over to David Simon for closing remarks, sir?.

All right. 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..