Welcome to Citi's 2024 Global Property CEO Conference. I'm Nick Joseph, joined by Craig Mailman with Citi Research, and we are pleased to have with us Simon Property Group and CEO David Simon. The session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can go to liveqa and enter code GPC24 to submit any questions. David, we'll turn it over to you to introduce your company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we'll get into Q&A.
Okay. I have Brian McDade to my right, who's the CFO. What happened to Ward? Tom, come on, come on up here. You get the front row seat. So we're giving Citi one chance. Okay. Last time I was here was 2017. One chance. No, I'm kidding. All right. So you want me to give a little highlight on the company? Okay. So Tom wrote this. If you have any problems with it, talk to Tom. But last December, we celebrated our 30th year as a public company. In that period of time, we've paid out $42 billion of dividends. So I think we went public at $22.25. Marty Cicco screwed me for the last quarter, which didn't seem like a lot of money until you do the math, and it was. And this year, at the end of this year, that'll be $133 or thereabouts, $135 of dividends paid.
So not quite technology returns, but a sense of the longevity of our company. We have $12 billion of liquidity. We are really good investors. We buy. We hold. We redevelop. We improve. We have the ability to build in all sorts of different parts of the world. So one of the underappreciated things is we're building an outlet center in Tulsa. That's Oklahoma, for those of you who don't understand the west of the Hudson. At the same time, we're building a center in Jakarta, and we built one outside of Paris last year. So we had a great property NOI growth of 4.8%. We had a record FFO of $12.51. And our occupancy sales, all those kind of statistics are up. We had fourth quarter even though your commentary on our fourth quarter call was not as friendly as I would like to have seen, but that's okay.
We're used to it. We have thick skin. We had comp NOI growth of over 7%, right, which was the highest in the sector. You failed to mention that, but that's okay. It was the highest in the sector. So I told you about the liquidity, and the portfolio is in good shape. Tenant demand is in good shape. A balance sheet that allows us to look at the long run, look at the long term. So we're going to be continuing to redevelop. While others worry about the cost of their capital, we can do it out of our cash flow or of our own liquidity that we've created. So not everything you wrote, but close enough, right? Okay.
All right. Why don't we start with the comment you made on tenant demand being strong and kind of the leasing activity? If we can dive into that a bit, what you're seeing, and maybe if we can talk about malls versus outlets and across the portfolio.
Again, I think the analyst community gets too focused on whether there's a roof on it or not. Just to give you a sense, we have 83 enclosed malls. Out of 215, 40% of our cash flow is in the got a roof on it. By the way, we live in houses that have roofs, right? So would you want to live in an outdoor maybe in Cabo? Cabo, I would recommend you don't have a roof in a lot of your areas. But roofs are okay, right? But for some reason, a roof is a problem in the analyst community. But 40% of our portfolio has a roof on it. 60% is basically outdoor centers. I don't see the demand difference. Good real estate's good real estate. The outlet sector sales have picked up. The full price really picked up right out of COVID. Outlet took a little longer.
As consumers are looking for more value, they're starting to go to the outlet a little bit more. Outlets tend to be more tourism-driven. So tourism's obviously back, not international as much as it has been historically, but so on. Dollar fluctuations have something to do with it. But by and large, we don't really segment tenant demand by whether it's a mall or an outlet. We don't really see a difference between the two at this point. And tenant demand is pretty good across the board.
In the conversations with the tenants, do they see a difference if there's a roof or not?
Not really. I mean, some kind of do, and we try to dissuade them from that. I think a lot of all I can say is, and we see across the board, the high-quality malls with roofs, productivity, in many cases, far exceeds an outdoor center. And again, it's perception versus reality. All I can tell you is you look at our cash flow and look at our longevity as a company. Look at the fact that we're capitalized the way we are. All of that's happened because we have these assets that have roofs on them. So don't get preoccupied. We don't have $12 billion of liquidity. We didn't pay $42 billion in dividends because our real estate's not that good.
David, Macy's is out with their news this quarter, 150 stores. They haven't made the list public, but I'm assuming some of their landlords know which spaces may be on that list. Could you just talk about the impacts, positive and negative, to you guys from either store closure or the ability to have better control of your real estate and kind of get some of these boxes back and unencumber some existing value at some of your malls?
Well, I know more about running a department store than I ever really wanted to. But I would say it's very hard to shrink to grow, by and large. This is a generic comment. And on one hand. On the other hand, to the extent that a change in strategy allows you to reinvest in your physical properties, is probably a pretty good outcome. I think companies have been distracted by their ability to reinvest. I go back to take Walmart as a great example. This must be well over a decade ago. And obviously, the family owns 50% of the company. So they kind of do what they feel is right. And by the way, they're usually 100% accurate. When we had the huge dot-com focus, Walmart announced Tom, you can get the date. I'm thinking it's 10-12 years ago.
They announced they were going to invest in their store profile. They were going to reinvigorate their store. And by the way, that was the juggernaut that allowed them to do what they're doing today. And that allowed them to invest in all the technology aspects and their dot-com business and everything. But it started and the stock dropped like a rock that day whenever it was. I'd actually like to know when it was. I forgot about when it was. But the ability to invest in your product is really appropriate. And we've done it historically for year after year. So I think if the company feels like this gives them the freedom to invest in their existing fleet, that's a good outcome. They need to do that. On the other hand, there'd be other things that I would do differently than what I've announced.
The fact of the matter is, I think at the end of the day, it won't be. It's not going to determine our fate one way or another. If I go back in time to the Sears announcement, right? So Sears was going to do this, that, and the other when they were bought. And many thought we couldn't outrun Sears, that that was the beginning of the demise. The reality is it gave us more opportunities. At the end of the day, it didn't matter. It doesn't matter. So I think there's a lot of opportunity there if they decide to have if they have the conviction that they can invest in their product. It'll be interesting to see how that evolves. But that takes courage. It takes willingness to do it. We'll see what happens.
But I encourage everybody to go back to the Walmart announcement. And when they said they were going to invest in stores, I heard Brian Cornell today talk about Target. They're investing in the stores. Target has 2,000 stores. Kohl's has 1,100. Walmart got a gazillion. JCPenney has 660. So Macy's going from 500-350. I'm not sure. I like scale. And I like EBITDA, even if it's coming from a small market thing. How do you replicate a fully depreciated asset? That's what I like. I like cash flow. Yeah, it may not be the prettiest asset that we have. But if it's cash flow that you can invest in a prettier asset, you do it. And just don't be swayed by what people want you to do, okay?
Because I think at the end of the day, you need a certain amount of conviction in what you're trying to accomplish. Those were generic comments.
Yep. Yep. Would you guys have an appetite or strategically make sense to buy some of these boxes and draw it out maybe to avoid some co-tenancy? How do you walk the fine line as you did with Sears? Or you guys own JCPenney's as well. How do you, from the mall's perspective in totality, walk that line of buying the box, negotiating with them to keep a store open a little bit longer to not trigger co-tenancy until you can come up with a backfill plan? How far along in the process could this be? How much capital would you want to put?
Yeah. I mean, look, somebody shrinking their store profile is something we deal with for the last 30, 40 years. So this is not a big issue. Co-tenancy means nothing to me. To the extent that there's a Macy's store that closes that triggers co-tenancy, it's de minimis to us. And we're always looking to put better retailers in there. And to the extent that there's a box there that we can either control through lease or buy at the right price and put a better tenant in, that's what we do day in and day out. But all of this noise around co-tenancy and risk, it's just not what I'm trying to convey here, if I've probably failed, but I'll try my best. These little things are a nuisance but aren't determinative of our success. Our success is that we have built this company that's unbelievably diverse.
We are good investors. We know when to buy, sell, hold, redevelop, new develop. We've done this in all sorts of different cycles, right? We've seen our competitive peer group kind of have other issues. And yet, we keep moving. We keep moving the ball forward. That's what we're about. $12 billion of liquidity, $42 billion of dividends paid. And so if a company's shrinking their portfolio, we'll deal with it. And it's on the margin. Now, I personally would do things differently because I've actually learned a little bit more about, like I said earlier, running a department store. And these stores that may have small volume, but they generate EBITDA. So how are you going to replace that EBITDA? Are you going to do it by selling an asset? And doing it, just make sure you understand how that math works.
We're experts at it. I think that's what everybody needs to factor in. Then, as we all know, when retailers shrink, their e-commerce shrinks unless they have a replacement. We've seen the studies. We know the studies. We've seen it firsthand from Penny. So again, it's not going to change kind of the outlook of what we've created here over a 30-year history.
You're setting a record with a number of questions that are coming in. So we'll try to get to many of them.
I can't wait to leave. I'll be back seven years from now, hopefully.
We'll save them for you. Maybe a follow-up just on department stores broadly. The question is just the long-term trend of department stores and how that will impact Simon.
Well, look, we've got less than we had a decade ago. And we're doing okay. So the ability to redevelop department store space into higher productivity uses has been an opportunity for us. At the same time, we'd like to see department stores deliver what they're supposed to deliver, which is a loyal customer, a good selection of goods. And I look at kind of, I don't know what it is. Maybe it's something in the water in Arkansas. But you look at Dillard's department stores, and they know their customer. They know how their stores look good. The consumer knows what they represent. And they prosper. So it is possible to do that. But you can't just run from one idea to the next. You got to kind of stick to what you believe is there.
I think over time, we'll probably expect to have less of our boxes occupied by department stores. It's not something that we are necessarily pushing for. We're adept at dealing with it.
Another topic that is coming in on the questions, but also you guys have addressed more recently, is just OPI and the monetization there. This question specifically about Klépierre. Just can you talk about the time frame and kind of how you evaluate when you monetize certain investments? And then what's the best use of the capital to reinvest in different parts of the business?
Well, I would say, again, just take a step back and think about the company. So we've made these other investments that, by and large and we've had some duds, but by and large, have been very profitable. Yet, if we look at the monetization of that and what we can do with that capital, I'm indifferent. We're very clinical as to what we look at. So you take our outlet business in other parts of the world. We love that business. On the other hand, if we get an offer that we can't refuse, adios. At the same time and that applies to basically OPI or anything else. So trust us. And I think the marketplace should trust us that we have the understanding of when to monetize, when to go long, when not to.
And then we also have the ability to withstand, if our timing's not right, withstand a cycle. So we've been pretty good market timers. On the other hand, we haven't been perfect. So let's go back to the Mills. Mills, we bought in 2006, closed in 2007. And if you remember, we had this thing called the Great Financial Crisis. I mean, it was kind of child's play for what we have dealt with historically. But our operational excellence allowed us to weather that storm of bad timing, okay? Same thing with Taubman. I mean, if you remember Taubman, we bought that brilliantly February of 2020, right? Right when we made the deal. It didn't close then. But we made the deal February of 2020. And in March, the world was shutting down.
So, yet, even with all that said, we were able to operationally excel to make all of the numbers and math better than what we originally underwrote. It's a little bit of a segue. But I'd say we have this unique portfolio that's got investments around the world and in different businesses. Everything's for sale at the right price. When we get the capital, we're going to put it back into the business. It's probably the number one priority, which is kind of continue on our redevelopment. The interesting thing is, on redevelopment, we're probably one of the few companies "in our sector" that is returns certainly should reflect capital markets. But we don't need the capital markets to allow us to redevelop. You see what I'm saying? Most people need certainly, on the private markets, they need financing or they can't build.
We can just build or redevelop without now. We have to be cognizant of returns. But we can build without am I going to get a construction loan kind of deal, right? So I'd say number one is continuing to redevelop or new develop where the returns are appropriate. And at the same time, look, our dividend is going to grow.
I think we're going to continue to opportunistically buy our stock back because we still think, even though the stock's had a good run, when I look at asset values worldwide, worldwide asset values and whether that's art, whether that's homes, whether that's tech stocks, whether that's oil and gas, I still don't see the and the fact that you can't replicate our portfolio. I still haven't seen the real run-up in asset values that I think potentially could come given the amount of capital that's out there and the resilience of our cash flow stream that does have an inflation kicker. So we're big believers that we can continue to invest in our portfolio to make it better. And then opportunistically, we'll be looking at reinvesting, buying our stock back if the markets become more volatile.
How do you think about consolidation opportunities, either domestically or internationally?
Sorry about that. Look, there's still a we're not opposed to growing selectively. But I don't have a burning desire to do it unless the math is compelling. And there's a gap between the bid and the ask. And I respect that, right, because nobody needs to sell if they don't have to. So we certainly could. We've been good buyers of stuff. But I probably would put us less likely that anything material is going to happen over the next period of time. The other thing is, we're just patient, right? So if you look at and I think you have a question here. Our group, retail real estate, has really there's been a lot more public companies. And if made mistakes, it's not jump on the industrial bandwagon, not done the tower.
We could have done some of these things that I guess we were too preoccupied with M&A. But our part of the little real world has gotten very, very smaller, right, less companies. So I think we can be patient and just wait for the right time. And it just really hasn't manifested itself.
You guys have talked a lot about the returns you've gotten in the OPI from a return to Simon. Do you feel like you've gotten credit in the stock price, even though economically, it's made money? And does that also drive kind of the simplicity of maybe divesting some of these to reinvest that capital? Or is it just solely a market timing? And then if an opportunity comes up in five years, you're going to dive back in? And so it's just an opportunity set issue rather than a strategic shift?
Well, I think we've done all of our investments with the eye toward that it was important to what we were doing for the company, right? So just take a small example. Authentic Brands Group, when we made that investment, we were buying struggled retailers that we felt we could turn around and buying the intellectual property of those retailers. And we believed in the growth that that company was going to be able to generate and all sorts of marketing and all sorts of other opportunities. So there is a rationale to why it may not be apparent. We may not be great at explaining why we're doing stuff. But it is connected to our business. So we're not drilling for oil, even though we can lease mineral rights, which is, but we're not actually drilling for oil. So it is connected to our business.
It's kind of an interesting evolution, right? So the earnings part of it was non-material pre-COVID. Nobody cared. They weren't in big investments. COVID, nobody cared about anything. But are you going to survive? Got it. Certainly, we understood that. And then suddenly, we had this great boom where JCPenney and the like were making a lot more money than we ever anticipated. And so then the materiality of the OPI became a little bit more a little more important, I guess, and never really reached more than 10% of our earnings, so to speak, earnings being FFO. Then it reverted to kind of the mean. And now it's less. And there's been volatility. So the market doesn't like it. I respect the market on that. And because of that, we're always going to look to monetize those kind of investments.
At the same time, we do it because we think there's a strategic reason to do it. And again, there's a lot of focus on it. But today, we anticipate 2024. And earnings are a little more volatile. But it's almost non-event. I mean, it's under, what, 3%, 2%?
1%.
1%, okay? So I should know the number. Hopefully, it'll be better, right? Better than 1. But it's 1% of our earnings. So the obsession with it, not that you've only asked four or five questions. So you're not at the point of obsession. But you're getting and I'm kidding. You're getting close. If we can monetize it and plow it back and the multiple is where we trade versus where we sell that makes economic sense, we'll do it. I wouldn't rule it out. But I have no desire to do other deals either.
I guess to that point, how do you think about the medium and longer-term compounding growth rate of earnings given the current leasing environment and maybe the minimalization of some of that noise?
Well, look, I think the only headwind that we see are interest rates. And so we see comparable NOI growth at a pretty healthy clip going forward. We have the liquidity to, like I said, invest in the business that will fuel accretive growth, will continue to monetize assets that we can use to buy stock back or even pay down debt. And sometimes, it's accretive. So feeling pretty good, though. But the headwind is higher interest rates. I mean, we were fortunate to finance a lot of our activity at low rates. And so I think, I mean, we have obviously a well-capitalized company. But we do have debt. And so we've got to deal with that. That's really the only headwind that we see right now.
You guys are one of the few REITs that are international in focus. As you look at domestic versus your international options, what's the most interesting place for you right now to invest in incremental dollar?
Well, again, this is more difficult. We're really not going to put a lot of capital. But the highest returns tend to be our Southeast Asian new projects, outlet projects. If you just look at pure real estate return on investment kind of numbers, now, they're hard to do. The financing costs are a little bit higher. We don't put a lot of equity. But that population is young. And it's growing. And the incomes are growing. So if you looked at it from a pure macro investment and again, I mean, you're not going to see a big portfolio of new outlets in Indonesia, okay? So relax, everybody. But if you were going to look at just pure real estate returns, that's a very attractive area.
And then obviously, building to the extent that we think an asset's worth this cap rate at this mall here or this outlet and to the extent that we can add to it or build to it, that's very attractive. So take one that jumps at me is Woodbury Common. We're doing phase five. And then we got to get the approvals. But making an asset like that that center did in the fourth quarter did close to $400 million of sales, okay, $400 million of sales in one quarter. So taking an asset like that and growing it in this case, we might add hotel, et cetera, more retail, that to us is a big focus. We've got this big project in L.A. that we're still trying to sort through in terms of all the development entitlements and risk.
But those kind of things are kind of where we're focused on. Again, the good news for all of my peers in the retail world is that there's just no new supply, right? And I think we're all going to take advantage of that. It doesn't mean there's not going to be bad retail real estate, right, whether it's a strip center, a mall, whatever. But I think we're all going to take advantage of the fact that there's just no new supply.
Perfect. So I think with time running down, we're just going to run into our rapid-fire questions. So first one, and we could just generalize this for retail, what do you think same-store-NOI growth will be in 2025 for the group?
Well, I think ours will be at the high end of the range, put it that way.
Will retail and, I guess, hard with malls, but have more or fewer of the same amount of companies this time next year?
One more time?
Will the retail space have more or fewer of the same number of public companies this time?
All of the retail? I think there'll be more consolidation. I think there's a lot of REITs generally. I think you'll see more consolidation, less REITs.
Last one, best real estate decision today for Simon, buy, sell, build, redevelop, or repurchase stock?
Yes.
Thank you.
Thank you.