Greetings, and welcome to the Simon Property Group's Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce to your host, Mr. Tom Ward, Senior Vice President of Investor Relations. Thank you. Mr. Ward, you may begin..

Thank you, Camilla, and thank you for joining us today. 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.

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 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 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.simon.com.

Our conference call today will be limited to 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..

Good afternoon. I'm pleased to report our second quarter results. Second quarter funds from operation were $1.08 billion or $2.88 per share. I'll walk through some variances for this quarter compared to Q2 of 2022. Domestic and international operations had a very good quarter and contributed $0.08 of growth, primarily driven by higher rental income.

Higher interest income, and other income of $0.04. Higher interest expense cost us $0.08 in the quarter-over-quarter comparison, a $0.05 lower contribution from our other platform investments and publicly held securities compared to Q2 2022.

FFO from our real estate business was $2.81 per share in the second quarter compared to $2.78 per share in the prior year period and year-to-date that comparison is $5.65 per share in 2023 compared to $5.58 in 2022.

Our real estate business is performing ahead of our plan and overcoming the headwinds from higher interest expense and we are also pleased with our OPI results in the quarter and continue to expect the business to meet our original 2023 guidance we provided at the beginning of the year.

We believe the market value of our OPI platform is approximately $3.5 billion or roughly $10 per share. We generated $1.2 billion in free cash flow in the quarter and $2.1 billion year-to-date. Domestic property NOI increased 3.3% quarter-over-quarter and 3.6% for the first half of the year.

Portfolio NOI, which includes our international properties at constant currency, grew 3.7% for the quarter and 3.8% for the first half of the year. Our mall and outlet occupancy at the end of the second quarter was 94.7%, an increase of 80 basis points compared to the prior year. The mills occupancy was 97.3% and TRG was 93.7%.

Average base minimum rent for the malls and outlets was $56.27 per foot, an increase of 3.1% year-over-year. This is an all-time high for our BMR and the mills rent increased 4.3% to an all-time high of $36.02 per foot. Leasing momentum continued across our portfolio.

We signed more than 1,300 leases for more than 5.0 million square feet for the quarter, and we are up to 11 million square feet year-to-date. We have 1,100 deals in our pipeline, including renewals for approximately $470 million and occupancy cost more than 30% of our total lease activity in the first half of the year was new deal volume.

We continue to see strong broad-based demand from the retail community across many categories. Reported retail sales per square foot in the second quarter was $747 per foot for our malls and outlets, the mills at $677 per foot.

We also hosted our second annual National Outlet Shopping Day in June was very successful for shoppers and participating retailers. We generated more than 3 million shopper visits over that weekend. Feedback has been great. We are also excited to continue to build on this annual event, and we expect it to continue to get bigger and bigger each year.

Turning to the balance sheet. We completed the refinancing of nine property mortgages during the first half of the year for a total of $820 million at an average rate of 6%. Our balance sheet is strong. We have $8.8 billion of liquidity. Today, we are proud to announce our dividend of $1.90 per share for the third quarter.

That's a year-over-year increase of 8.6%. The dividend will be payable on September 29. We have now paid over $40 billion in dividends since we've been public. We are increasing our full-year guidance of 2023 from $11.80 per share to $11.95 per share to $11.85 and respectively $11.95 per share.

This is an increase of $0.05 at the bottom end of the range and $0.02 at the midpoint. Now, let me give you food for thought, if I may. We have built a world class portfolio over our long period of time since we've been public.

Following our DeBartolo transaction in 1996, our portfolio consisted of 119 malls and 65 strip centers primarily in the Midwest. Since then, we have acquired 220 properties, developed more than 50 and disposed of approximately 250 properties. Of the original 184 properties in 1996, 37 remain in our portfolio today.

So our high productive portfolio is a result of constant asset rotation. Finally, let me conclude by saying our business is performing well and is head of our internal plan. Tenant demand is excellent. Occupancy is increasing. Basement and rents are at record levels.

Property NOI is growing and again, beating our internal expectations that we set at the beginning of the year. And we are now, operator, ready for your questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Mr. Steve Sakwa with Evercore ISI. Please proceed with your question..

Thanks. Good afternoon, David..

How are you doing, Steve?.

Good. I just wanted to follow-up on your leasing comments in the pipeline. Everything sounds really good and maybe even getting better as the year unfolds.

So where do you ultimately think that occupancy in kind of the mall portfolio can ultimately settle out? And are you seeing an accelerating trend in pricing power across the portfolio?.

Steve, first of all, I think will be north of 95% by year-end. And I want to be – I don't like the word pricing power so much. I think, our asset rotation that I mentioned earlier has allowed us to create kind of a portfolio that's really unrivaled in our industry.

And given our strong tenant relationships, we're in a good spot to find kind of the win-win that needs to happen when you lease as much space as we do. The physical environment in terms of bricks-and-mortar sales is as important as ever. That's been reinforced by essentially every retailer and anyone that's in the e-commerce business. All look to that.

I think there was obviously a long period of time where many felt, many of the [pundits] felt that bricks-and-mortar just don't matter. That's the furthest thing from the truth. So we continue to think our rollover. By and large is going to be positive.

And we have the ability now with new tenant demand to replace retailers that aren't producing sales and which will allow us to generate higher rent. So I do think we're pushing up rents. I think we're doing it hopefully thoughtfully by and large and we expect that trend to continue. Thank you..

Thank you. And our next question comes from the line of Ms. Caitlin Burrows with Goldman Sachs. Please proceed with your question..

Hi, everyone. David, you gave those details on the asset rotation since 1996, so I guess that's making me wonder, and I'm guessing everybody else.

Should that be a suggestion to us that you're looking to get more active in asset recycling kind of near-term, medium-term acquisitions dispositions? Or was that just more a comment on kind of the Simon historical strategy?.

Well, I would say, we've been very active, right? So I think, because of our size, it does get lost in translation that we're always recycling, always looking to improve the quality of the portfolio. So I would think our trend would continue in that sense and will always recycle assets.

We find to the extent that we can do that and generate more liquidity. We find our – and not just it's every asset that we have to the extent that we think there's a good trade to do, whether it's to sell or to buy, we're going to pursue that. And I think it's been an important component of our success over time. At the same time, we've done it.

As we all know, we've done it in a way where others have done it in a way to generate the quickest short-term returns through a lot of leverage. We've done it as thoughtfully in terms of maintaining the balance sheet as anyone. So that's been another key component of our ability to grow yet recycle.

So I don't think I'm signaling, but maybe you have these epiphanies, so maybe it's possible, right, that there'll be some – we'll be more active on reallocating capital to different assets than we have today..

Thanks..

Thank you. And our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question..

Hey. Good afternoon down there, David. And also thank you for moving your call to avoid an overlap. Appreciated. So question, there was a recent press article and not that article, not which I'll let you opine if you want.

But just talking about luxury sales, and my question is this, we all look at luxury as sort of like the ultimate, the driver of retail, if you will. But my question is really given how customer preferences have changed lifestyle, people changing how they live, sort of curious when you look at the tenant landscape.

Are there any sectors that you would say are now, I guess going back to [Kaitlyn's] early 90s example. Are there any sectors now where you're like, hey, 20, 30 years ago, this sector was nowhere and now it's 20% of retail or it's the absolute must have.

And I'm just sort of curious if luxury is still sort of that dominant place in retail, or if it's more nichey and it works in certain malls, but for the bulk of what really drives your cash flow to bottom line, maybe it's other sectors.

I'm just trying to understand how the face of retail has changed using your analogy of over the past 30 years, what the company looked like then in the Midwest versus now?.

Yes. Look, I would say, unquestionably the – some of the best retailers in the world like Kering or an LVMH Group, have the best brands, and they do the most volume. They build the best stores. They think longer term over any retailer that we've ever experienced. They're true to their business. So we admire what they do.

We admire how they build their brand. We admire how they maintained their brand. They have loyal customers. So there's no better companies to do business with that belief, and we aspire to be more like them than, than anything. And I think how they maintain their stores and how they treat their customers and how they're true to themselves.

So the luxury business is here to stay. It's growing. It's really important. It's worldwide. It's a great consumer that loves physical retail, that wants to go shop and do other things at our centers. So we want to do as much business as we can with them. They're still very focused. Obviously sales have flattened a little bit compared to Q2 of 2022.

But if you look at where they are and Tom and Brian, I don't know off the top of my head, Alex, but they can – we're 20%, 30%, 40% above where we were in 2019. But I don't remember the exact number. But they can give it to you later.

So one of the interesting things is LVMH Group, and really if you look at our 8-K, they're now our – in our top 10 tenants. We couldn't be more proud of that relationship and the brands that they have. So this is not a niche business. This is a growing business.

It's for exactly the affluent shopper, the established shopper, but also the affluent shopper. And the fact that we do so much business with them is something that we're extremely proud of. And we will – I don't like the word lean in, but we will do as much as we can to continue to foster those relationships.

And that is a huge differentiating point that we have at Simon Property Group. So it's all systems go there. Yes, sales will flatten, they'll go up, they'll go down, but their commitment to their customer and what they do in the stores, I think goes unabated.

And they really – I admire the fact that they take – they're not a quarter-to-quarter company, they take a much longer view of their brand and where they want to plant their flag and how they want to treat their customers. So they are true partners and great generally across the board. We love doing business with them. And it's not a niche.

And that business is growing, it's growing worldwide. And in fact, if anything, we'd like to follow kind of where they're headed because we think there's great business to do together. I hear you typing.

Is that – another question?.

Sorry. No, I think Tom said and Federal is right after you guys, so I thought my mic was already cut, so I didn't know you could….

We're kidding. We're only kidding. We'll talk to you later. Thanks, Alex..

Thanks..

Thank you. And our next question comes from the line of Vince Tibone with Green Street. Please proceed with your question..

Hi, good afternoon.

Could you discuss the [current thread] between leased and physical occupancy? And then kind of the cadence in what visibility your store openings for leases that have been executed, but are not yet open?.

So this is Brian. We are still hovering right around 200 basis points of unopened. That ebbs and flows as you might imagine every month given the velocity of our business. We do think we're going to carry that through year end.

And certainly, we do expect that we are going to continue to see openings throughout the balance of the year, as retailers open later this month and into September and October..

And I would say, just on follow-up on that, Vince, is that, a lot of the business that we have signed leases on and/or about to be signed is still – and I don't – I mean, we can give you the exact number. I don't have it again at the top of my tongue, but – at the tip of my tongue.

But there is a lot of the business that we've signed or about to be signed is really 2024 and even 2025 business.

And especially, when we're in the – we're talking the restaurant business, you're talking nine months build out, you're talking permits that are required to get – it's a little more complicated getting restaurant permits, liquor license, et cetera.

We've got some great restaurants going into Forum, Crystal, Stanford, Boca, but you're literally talking about a year to get permitted, get opened. To some extent some of this was delayed also with just equipment because of the COVID and the – all of the supply chain issues associated with it.

So – and again, when you're talking about our full price business, build outs are longer than the outlet or the mills business. So the pipe on that sense is pretty good, which is not in these numbers. But we also on that front have boxes that are scheduled to open in 2024, 2025. That is obviously serious long time, a year plus build out.

A lot of business with Dick's, Primark, Life Time Fitness, et cetera that even Barnes is doing new deals. We're building a new store with Kohl's. Stuff that just takes time – and hours to shields, et cetera, even though they just recently opened in Wichita to a great opening, which is one of our 37, by the way, just for a fun fact.

So the build out is frustrating in that, it does take time, but it's – so we still expect some really interesting things to happen in 2024, 2025 as these tenants open. And remember in a lot of cases, the more interesting the retailer, the longer the build out there is a correlation there..

Yes. That makes sense. That's all really helpful color. I appreciate that. My next question, I was hoping you could discuss how demand today [differ by] retail format and geography. I'd be curious to hear anything between malls and outlets and also between gateway markets and suburban centers..

Simply, I thought, as I go back in time, I think the – and I'm trying to go through COVID. I think the demand in the outlet business has picked up more. It was slower to pick up than the mall business, and I think it's finally picked up to kind of where the mall business has been.

So I think demand from a product type is kind of even now, and that's not to say malls have slowed down, the outlet took a little bit longer to pick back up. Mills was somewhat unabated in that. And as you know, it's a combination of any and all. Regionally, by and large, the super regional suburban sites have a high level of interest across the board.

We don't have a lot of city center stuff. So it's – we're not the right guy to ask. But I am happy that our portfolio is positioned in the high catchment areas in the suburbs.

And then finally, regionally, as you might imagine, where you're seeing population growth, Texas, Tennessee, Florida, those kind of places are seeing a little bit more of the outsized demand.

But again, in real estate, you could still have the best location in kind of a micro environment that does unbelievably well because it still is the center of attention. So you got to be careful on these geographic trends one way or another. It really is, as we all know. Real estate is very location oriented.

But I would say those are just kind of generic trends hasn't changed all that much. But the suburbs continue to be as we said a few years ago, well ahead of most. We still felt like that was the place to be, and we're happy to see that. Not that we make a lot of predictions, but we're happy to see that prediction. At least one of them came true..

Great. Thank you..

Thank you..

Thank you. And our next question is from Ronald Kamdem with Morgan Stanley. Please proceed with your question..

Great. Just one quick one. Just thinking about the growth function of the business. You talk about getting to 95% occupancy by the end of the year. Obviously, that annualizes in 2024. So when I think about the occupancy boost, the rent bumps, re-leasing spreads, it doesn't seem like a stretch to get to a 3% plus number next year in growth.

So I'm trying to understand what are some of the moving pieces we should be thinking about as we're building out the growth function of the business in 2024?.

Well, I think it's all of the likely suspects. It's lease-up, it's renewal spreads, it's new business, Obviously, it's overage or percent sales and sales activity. So there's nothing new there.

I mean it's all the stuff that has allowed us to grow our comp NOI over a long period of time through a lot of volatility, COVID – real estate recessions, e-commerce, proliferation of this, that and the other. So it's all of those likely suspects. I mean I think we feel generally positive about our ability to grow comp NOI.

But it's all the likely suspects and it's all the same metrics that we have to produce to generate that.

And we still have the ability, even as we get up to 95%, thereabouts, we still have the ability to – which we can't lose sight of, we have the ability to replace retailers with better ones that will just common sense, we'll be able to pay higher rent because they'll be more productive. It's really that simple. So – but Ron, it's all the same stuff.

And we're focused on hitting all of those cylinders certainly to finish this year, but also in 2024, 2025. And the added benefit that we have in 2024, 2025 is that we've got a lot in the pipeline that will finally open..

Helpful. Thank you..

Sure..

Thank you. And our next question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your question..

Thanks. Hey, good afternoon, guys. I had – unfortunately, I have to limit it to one. So I won't focus on the less important OPI stuff. But maybe if you can talk a little bit more about the 200 basis points of sign-on open.

Presumably, that's higher in your mall portfolio than your outlets? And maybe if you could also quantify in terms of dollar amount or NOI impact, I know that a lot of those leases in that. So there's a lot of luxury tenants, which typically pay significantly higher rents.

So presumably, it has a greater impact on your NOI and ABR than your – than the percentage just in terms of occupancy?.

Look, we don't want to get into that level of detail. We certainly will for 2024 as we outlined what our comp NOI growth is. But you're 100% right that the – it is much easier and quicker to open an outlet store. The build-out can be anywhere between 30 and 90 days. And the mall generally can be six months plus.

And then when you get to complicated tenants or where the build-out is expensive. You're talking nine months plus restaurants in that area. But we do – and it goes back to, I think, Floris, you were one of the original analyst that was very focused on when we're going to get back to 2019 levels. And I'm happy to say that we will be back.

We better be back, okay, but we will be back in there in 2024. And a lot of that really at the end of this year, we annualize it, so it really is a function of getting those retailers open. But the specific numbers, I mean, I'll – if the guys want to talk offline and go through it, I'm certainly happy to do that.

But that's – I think it's better answered as we go through 2024 our comp NOI plan with you early next year..

Thanks, David..

Sure..

Thank you. And our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question..

Great. Good afternoon. A follow-up question, David, on your comment on potentially allocating to money or investments into other assets. I mean, you've been doing that really since world financial crisis, investing in the best properties. You've been densifying assets with apartments, et cetera.

Is there anything else that you're thinking of changing that you've noticed a change, let's say, between the difference in the assets you own or what you're seeing out in the retail landscape? Or really sticking with those programs as well?.

I think, Jeff, we're going to more or less stick to our programs, but what we've done historically, I think it's been the right strategy. We'll nick and neck, I mean, we've had good experience by and large, not perfect, but good experience experimenting here and there. But our core business is high-quality retail real estate.

We're not moving away from that by any stretch of the imagination. We have lots of levers in that category to pull in terms of how we want to allocate capital. Do we want to put more here versus there, do we want to sell this and reinvest that. So I think that – if I had the ability to express it, we think about that all of the time.

We never really talk about it. But as we – the sole purpose of going through that asset rotation was to tell you that we do think about this stuff all the time. And beyond just think about it, we actually do stuff about it.

So – and sometimes communicating that to investors and analysts is important to know that we're going to reallocate capital where we think the growth is, and we're not afraid to sell or buy or hold or whatever kind of we think is the right thing to do. So that's really it.

I wouldn't make – this is not like – we're not trying to like here we go, something is big around the corner. It's just – we've done this, and we just wanted to point it out..

Great. Thank you..

Sure..

Thank you. And our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question..

Yes. Hi.

Can you give us a sense as to how rent spreads compare when you move from the mall and outlet portfolio to TRG to the mills?.

Well, I don't want to really talk about TRG so much, but I would say the spreads are – when you look at mills, outlets and malls, it's all pretty decent. We still see – our occupancy cost now is around 12%, right? So we're feeling better about our ability to generate positive rent spreads.

It's not always going to happen on every space in every mall or outlet, but we're seeing it pretty much across the board. And as again, I would say to you from what might shift is where I thought our outlet business was a little slower coming out of COVID. We're seeing a much better pickup over the last year or so there.

And so we're optimistic that, that's going to continue as well..

Okay. Thank you..

Sure..

Thank you. And our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question..

Good afternoon. Thanks a lot for taking my question. In your opening remarks, you talked about the deals in the pipeline and that 30% of lease activity in the first half was new deal volume.

How does that compare to the past? And what does this indicate? Does this indicate that there is greater interest for new concepts to – that are interested in leasing or is there some other meaning behind this data point that you provided? Thank you..

I just think it – most importantly, it reinforces the importance of our product and it reinforces how retailers feel about our – the mall and the outlet business. So it's a great sign. I mean it's a great sign that we have new concepts.

And I would say, generally, the 30% has really developed over the last, say, two months and whether it's direct-to-consumer, whether it's the luxury, whether it's a restaurant business, whether it's entertainment, we're seeing entertainment pickup like we did pre-COVID.

So I think it's a testament to the product, the new retailers that want to open new stores in our existing product is a great sign and a great testament.

And that level is certainly much higher than I've seen since I mean, it goes – I'm going to say, almost seven, eight years because the 2020 – I'm sorry, in 2019, we probably didn't have that level of percentage of new tenants.

So it's clearly higher than it was in the 2019, 2018, 2017 level, and it kind of goes back to where we were in the 2014, 2015, 2016 level. So it's a good sign for sure..

Thank you..

Thank you. And our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question..

Hi. Good afternoon. Two-part question. One, it looks like there's a $0.10 or $0.11 gain in the P&L. Just curious if you could talk a little bit about what that is and if that was assumed in the guidance the prior guidance? And then secondly, if you have any comments on the prior quarter's comments on domestic property NOI of at least 3%. Thank you..

No, no, no, I know that.

But the two – what did you say 2%?.

3%..

3%, let me start there. So yes, we're feeling very comfortable that we'll be above the 3%. The after-tax gain is associated with the ABG raising of primary capital, which we get diluted down. So it's a – we have a dilution gain after tax, it was $0.07..

Yes, there's $0.03 of tax in the tax line, Michael, for that transaction..

Okay.

And that wasn't in the prior guidance, I'm assuming, correct?.

Well, we didn't – I don't – we give a pretty big range and really wasn't in our guidance so much to speak because that's really out of our control..

Thank you..

Thank you. And our next question is from Greg McGinniss with Scotiabank. Please proceed with your question..

Hey. Good afternoon. So quick two-parter on Taubman from me. NOI was down 3% from last quarter, while occupancy was up 40 basis points. Just curious what the drivers were of that decline.

And then in line with your comments on asset recycling, can you remind us the process by which you would recapture the remaining 20% of that investment and whether you're planning to do so? Or maybe that's one of the assets that you might be looking to recycle?.

Well, I'm not going to comment on that. So there are puts and calls associated with Taubman over basically a five-year period. They have the right to kind of slowly put 20% of their interest to us, and then we eventually have a call associated with it. So that's that.

And Brian, why don't you go through the – it really was more of a function of kind of the percent rent or overage rent that they had in Q2 of last year. But you can – do you have any other comment on it..

Yes, Greg, that's exactly what it was. You can see on a year-to-date basis, we're still ahead, but they did have a higher percent of rent contribution in Q2 of last year than they did this year..

The other thing on Taubman, if you on TRG, so our FFO contribution this quarter versus last quarter is lower, and it's primarily three things. Number one is, we've got D&O insurance reimbursement in Q2 of 2022. That's number one. Number two is we also had a land sale. And then obviously, number three is the higher interest expense.

So there are a little more exposure to floating rate debt there.

And I think the spread difference between our FFO contribution from TRG to Q2 of 2022 over 2023 was – how many cents? $0.07, something like this?.

$0.07..

$0.07, okay? So I still remember numbers. So if you go through – so our FFO contribution from Taubman TRG where we own 80% was $0.07 lower this quarter than Q2 of last quarter of 2022, okay? So that might be helpful to you. Those are the order of magnitude, if there's any details on that call Tom or Brian. But that's generally it.

So we had a lower contribution.

Is that the right number, Adam?.

Yes..

Okay. Thank you. That's the right number. So there's really not much to ask..

Okay. Thanks..

Thank you. And our next question comes from Haendel St. Juste with Mizuho. Please proceed with your question..

Hey. Good evening out there. David, can you talk about….

To be technical, we're really not out there. We're actually in New York City today. So I know Indiana is considered out there, which I will not comment on, but we're actually right here. I don't know where you are, but we're right here in New York City..

I'm not too far from you. So can you talk about the outlook for retail sales in the back half of the year given the macro and the expiration of the student loan payments and what you think that will do or impact that will have on the business.

And maybe some commentary also on year-to-date debt how that's trending and early thoughts on potential improvement on that line item in 2024? Thanks..

Yes. I would say we're actually optimistic on the back half of this year because comps or sales, I should say, in the second half of 2022 really started to decelerate because of the – obviously, the increase in interest rates, gas prices, inflation.

So I think across the board, our comps get easier for our retailers in the second half – so we're actually optimistic. And I think generally, the economy, as we all know, is seems to relatively stable. Obviously, it's a very uncertain world. So anything can happen.

But we're actually optimistic on sales for the second half, and we expect it to comp up on – with respect to bad debt, we're not seeing – I mean it continues to be lean and mean – and it's a little more than maybe last year, but it's like – it's still comparatively historical lows..

Okay. Thank you..

Thank you..

Thank you. And our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question..

Hi. Thanks for taking my question.

In terms of 3% NOI growth, is that the level you think you could sustain next year?.

I would hope so, yes..

Any color around that?.

Not one of my qualities, but that was the most succinct answer that all day.

Do you have another question, Linda?.

Sure. I guess on Page 19, you also broke out mixed-use in franchise operations income and also the same line item for expense.

Maybe just a little more color?.

Yes. I think Brian and Tom felt because we're doing – and these are only consolidated assets, so we have a – we have a big franchise operation with Starbucks in terms of our – where we franchise some Starbucks location plus, obviously, we're building hotels.

And the – and it was all lumped into the other income, other expense, and we thought instead of having all the questions on why is this number growing and this number growing? We kind of – we just felt like it would be better to separate it. For your – believe it or not, for your benefit..

And then how do we model that going forward?.

Look, I think the hotel business is pretty straightforward in that we're building it. We have certain returns. And I think we pretty much outlined our returns in our 8-K. So I think that's pretty. Obviously, it takes time for apartments or hotels or any mixed use to stabilize. But I think that will be pretty easily.

At the end of the day, the Starbucks business is not over – it's not even material. So there is some profit embedded in there, but it's – we view it more as an amenity that we can make some margin on. And it's grown a little bit bigger than what it was historically because we took over some of the operations during COVID.

And so that's not an overly material number and we can kind of give you order of magnitude of revenue and expense. The only problem this year really some of these just came on board. So I'd say to you in 2024 will be the kind of the first full-year, and that will probably be – we can certainly outline what it is.

But the net profit is not overly important.

Does that's help?.

Yes. Thanks..

Sure. Thank you..

And our next question comes from Craig Mailman with Citi. Please proceed with your question..

Good afternoon. David, just a quick clarification on one of the earlier questions about the $0.07 net gain. You guys raised guidance here by $0.05 at the midpoint.

Could you just run through if there are any other puts and takes that moved around with guidance this quarter or maybe this wasn't the sole driver, but maybe something operational, and this could have offset something else? Just trying to get a sense that was this the reason guidance went up and had this not happened, you guys would have ended up kind of lowering the range here on the margin?.

No. I mean I think we're always pretty conservative. So we'll see how the – we're always trying to beat and improve our numbers. I think we have as good a history of anybody to do that. And again, we always – I know that might frustrate folks, but there's always puts and takes in a company our size. I mean we have $80 billion of assets.

We're not a small strip center company that's got – there's going to be some volatility. We've got a $3.5 billion asset portfolio. But so far, this year has thrown off zero earnings, FFO essentially, it's mostly back-half – back-end weighted. Again, we have $3.5 billion of value market doesn't value. It's not in our earnings.

I think the number to look at is our – the number we gave you, which is our kind of FFO real estate earnings. That was at 281, if I remember that was hurt by $0.08 of rising interest rates. That's 289. I think we give you comp NOI, you're going to have some volatility because of OPI. I think OPI is really simple.

$3.5 billion, it's going to make $0.50, $0.60. And it's on our books for a lot less – and again, in terms of investments and monetization and everything else associated with that, we're always going to do the right thing. So that's really it. I think obviously, overage rent has stabilized. So it's a little more conservative.

We want to make sure we're conservative as we look at the year. If sales do grow on the back-end weighted that we think will be our overage number, which we mean we'll beat our guidance. But we don't have a crystal ball, but we've been – we've raised our guidance from the beginning of the year. That's the important thing.

We've had headwinds with that rising rates went up higher than we thought – is probably the biggest headwind. And then second, the OPI's side has been more back-end weighted than we originally anticipated. And that's simple as that.

The other thing to remember is – so ABG just raised money at basically a $20 billion enterprise value because of their growth, we got – we own 12% of the company. We got zero funds from operation contribution from them because of all of their onetime charges.

We had the same situation in Penney, and that's why we are giving you this real estate FFO number, put a multiple on it. It's too low. Whatever multiple you think it is, I would add a couple of 100 basis points. It's too low then add $10 a share, and that's our NAV and then enjoy the rest of the summer. That's how I would think about it.

Are you still there?.

I am. Thanks, David..

Okay.

You buy that argument?.

We need to talk about..

All right. Thank you for listening. Okay. So I think we're out of questions, and I owe it to Don Wood. Now I want to tell you a story, okay? So we – Don initially stole our 5:00 o’clock time period – so we were not very happy and we said we'll do it together. And then I said, you know what, we're we loved Don, we want to be friendly.

So not only did we move our time, but we gave Don the option of whether he wanted to do 4:30 or 5:30 and he chose 5:30. So if you don't like our time or you don't like his time, blame Don, but I'll hand it over to Don. I feel like Ed McMahon and Don is Johnny Carson. Thank you..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..