Simon Property Group - Q1 2024
May 6, 2024
Transcript
Operator (participant)
Greetings, and welcome to the Simon Property Group first quarter 2024 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ward, Senior Vice President of Investor Relations. Thank you, Mr. Ward. You may begin.
Tom Ward (SVP of Investor Relations)
Thank you, Camilla, and thank you all for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer, and President, Brian McDade, Chief Financial Officer, and Adam Roy, 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 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 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 this evening will be limited to one hour. For those who would like to participate in the question-and-answer session, we ask you please respect the request to limit yourself to one question. I'm pleased to introduce David Simon.
David Simon (Chairman, CEO and President)
Good evening. We're off to a good start with results that exceeded our plan. First quarter funds from operations were $1.33 billion, or $3.56 per share, compared to $1.03 billion, or $2.74 per share last year. Let me walk you through some highlights for this quarter compared to Q1 of 2023. Domestic operations had a very good quarter and contributed $0.09 of growth, driven by higher rental income. Gains from investment activity in the first quarter were approximately $0.75 higher year-over-year. OPI had a 2-cent after-tax lower contribution compared to last year.
Funds from operations from our real estate business was $2.91 per share in the first quarter, compared to $2.82 in the prior year period, 3.2% growth rate. Domestic property NOI increased 3.7% year-over-year. We have continued leasing momentum, resilient consumer spending, and operational excellence delivered these results that were above our plan for the first quarter. Portfolio NOI, which includes our international properties at constant currency, grew 3.9% for the quarter. NOI from OPI in the first quarter includes a $33 million charge in one-time restructuring charges at SPARC and JCPenney. Excluding these one-time charges and a bargain purchase gain from Reebok transaction last year, NOI from OPI improved $5 million year-over-year and was on plan for the quarter.
Remember, these retailers are on a fiscal year end of January 31, and the charges were part of their year-end closing process. They were not budgeted. Mall occupancy at the end of the first quarter was 95.5%, an increase of 110 basis points compared to the prior year. Mills was 97.7%. Average base minimum rent for our malls and outlets increased 3% year-over-year, and at the Mills, 3.8% increase. Leasing momentum continued. As I mentioned, we signed more, more than 1,300 leases for approximately 6.3 million sq ft. Approximately 25% of our leasing activity in the first quarter was new deal volume. We are approximately 65% complete with our 24 lease expirations, and we continue to see strong, broad-based demand from the retail community.
Retail sales volume across the portfolio increased 2.3% for the first quarter compared to last year. Our tourist-oriented properties outperformed the portfolio average in the quarter with a 6% increase in sales. Reported retail sales per square foot in the first quarter was $745 a foot for our outlets and malls, combined, which was flat year-over-year, excluding two retailers. Retail sales per square foot from our premium outlet platform reached an all-time high this quarter. Occupancy cost at the end of the first quarter was 12.6%. Now let me talk about other platform investments, affectionately known as OPI. We sold our remaining interest in Authentic Brands Group during the first quarter for gross proceeds of close to $1.2 billion and recorded a pre-tax and after-tax gain...
of $415 million and $311 million, respectively. The sale in the first quarter, combined with the sale in the fourth quarter, yielded gross proceeds of $1.45 billion. We generated substantial value from the ABG investment and a 7x multiple on our net invested capital during our short ownership period. As a result of the sale of ABG and the restructuring charges that I mentioned earlier, one-time in nature at SPARC and JCPenney in the first quarter, we now expect FFO contribution from OPI to be around breakeven this year compared to the initial guidance of $0.10-$0.15. For your reference, we budgeted at OPI the FFO from ABG around $0.08 per share, so roughly half of that was associated with ABG. Now moving on to new development and redevelopment. We opened an AC Hotel at St. Johns Town Center.
We are opening Tulsa Premium Outlets this summer. Leasing's going great, and we have a significant expansion at Busan Premium Outlets in South Korea this fall. At the end of the quarter, new development and redevelopment projects were underway across our platforms in the U.S. and international, and nationally as well, with our share of net cost of $930 million at a blended yield of 8%. We expect to start construction on additional projects in the next few months, including, just shortly, our residential project at Northgate Station in Seattle. What's interesting for us is we're able to build when others need to rely on construction lending market, which is, as you might imagine, very difficult right now. We expect our starts to be around $500 million this year.
Now, on our balance sheet, we retired $600 million of senior notes in the quarter. We ended the quarter with approximately $11.2 billion of liquidity. Today, we announced our dividend of $2 per share for the second quarter, a year-over-year increase of 8.1%. The dividend is payable on June 28th. Given the transactions for this quarter and our results for this quarter, our current view for the remainder of the year, we're increasing the full range of our full year guidance of 2024. I'm sorry, let me restate that. We're increasing our range to $12.75-$12.90 per share, compared to $12.51 last year. This is an increase of $0.90 at the bottom end of the range and $0.85 at the midpoint.
Needless to say, I'm very pleased with our first quarter results, and our business, and tenant demand continues to remain strong. Despite a cloudy macro environment, occupancy is increasing, property NOI is growing, we made a significant profit on our ABG investment, and everything's kind of moving in all the right directions. Thank you. We're ready for questions.
Operator (participant)
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Caitlin Burrows (VP)
Hi, good evening, everyone. Congrats on the solid quarter operationally and execution on the ABG sale. I guess there have been news reports that you could get involved in Express. So whether it's related to Express or the Simon's strategy going forward, can you give some insight to your current thinking on having ownership in brands? What type of terms are attractive to you and how you balance that with the potential earnings volatility?
David Simon (Chairman, CEO and President)
Well, you know, no one likes earnings volatility unless it's volatility in the right direction, okay? So, Caitlin, thank you for the comments to start, but that's, you know, I don't like volatility either. Listen, on Express, we were approached by the IP owner. I think it's not overly complicated in the sense that they saw what we had done historically, both with ABG and SPARC, and offered us to participate with no capital, but also add our expertise and our knowledge in, you know, what we've done in the past with SPARC. And, because we have always valued Express as a retailer and as a client, you know, we jumped at the opportunity. So I...
We don't expect it, you know, we expect to be, you know, it's got to go through bankruptcy process, and that's, you know, that's out of our control. But if WHP does end up getting it, we'd be pleased to participate in the turnaround of Express. And again, we don't expect any capital as part of that participation. So, you know, when we get opportunities like that, we evaluate it, we look at the brand and the value of the brand. In this case, we're, you know, comfortable that Express is a good company and is a great brand, and we can add value to it.
Given the fact that, you know, we were able to hopefully turn around the retailer, save jobs, create the value from our investment, you know, it, it's—we, we see it as a win-win situation with, with, you know, with no capital from our standpoint.
Caitlin Burrows (VP)
Great. Thanks for that.
David Simon (Chairman, CEO and President)
Thank you.
Operator (participant)
Our next question comes from the line of Jeffrey Spector with Bank of America. Please proceed with your question.
Lizzy Doykan (Research Analyst)
Hi, this is Lizzy Doykan on for Jeff. I was curious if you could talk a little bit more about the key drivers of retailer sales as we started the year. And it seems like there's been, you know, some good outperformance driven by especially your tourism driven centers. So I'm just wondering how much that has been a factor into the first quarter of this year, and how much upside there is remaining from tourism? Thanks.
David Simon (Chairman, CEO and President)
Sure. We feel very bullish on the, on our, you know, portfolio in general. And then, obviously, our tourist centers, especially in California and in, the Northeast, are starting to finally see the, improvement that, you know, we have been seeing for quite some time in Florida. And, you know, Florida continues to be an unbelievably strong market as well. So we're finally seeing California, Northeast pick up. Obviously, the strong dollar vis-a-vis certain currencies does have a, you know, an effect, kind of a, an inhibitor effect. But even with that said, domestic tourism continues, you know, continues to excel.
I think people, at the end of the day, they, you know, as part of when they go on a holiday, they love, you know, they love shopping as part of that experience, dining, shopping, being with their families. You know, as I said earlier, I mean, we feel like the malls made a big comeback. You know, physical stores are where it's happening. We're seeing a resurgence and a reinvigoration of that whole product. We're pleased. It's kind of where we're seeing things. Certainly, the lower income consumer has been under pressure now for quite some time. You know, we're very focused on that. Obviously, inflation has taken its toll.
Even though inflation's moderating, the prices that you know the lower income consumers dealing with are quite you know daunting. So we'll continue to see volatility in that area, we anticipate. You know, we're hoping that you know their cost of living moderates, and to some extent you know their wages go up or you know their cost of living goes down, so we can see more discretionary income there. The higher income consumer continues to you know to spend and you know and visits our properties, and it's good. You know, as a good example of that is our traffic for the first quarter I think was up around 2% for the year. Right, guys? Yes.
So, you know, that's also a very good sign. Okay.
Operator (participant)
Our next question comes from the line of Samir Khanal with Evercore. Please proceed with your question.
Samir Khanal (Equity Research Analyst)
Good afternoon, everyone. David, Brian, you provided a same store guide of at least 3% last quarter. I guess, how do you feel about that guide today? You're doing 3.7% in the first quarter. Clearly, leasing's been strong, but we've also seen some announcements from Express, rue21. I guess, how do you feel about that guide today? Thanks.
David Simon (Chairman, CEO and President)
Yeah, look, we don't update that, as you probably know, I think you know. We don't. You know, that's our goal for the year. We don't update it every quarter, as some others might, but we still, you know, feel like that's even though we've got some unanticipated to some extent, I mean, we do, you know, bogeys on our rental income stream on retailers that we do feel might come under pressure in the year. So we do have kind of adjustments in our budgeting process dealing with those. We still feel like, you know, our initial guidance on that is very achievable.
So we don't update it every quarter, but, you know, if we didn't feel like we could achieve it, you know, I think we would, you know, we would highlight that. But we don't see that even with some of the, you know, I mean, we might not overachieve, you know, as we always want to, but I think we can still deliver the initial guidance.
Samir Khanal (Equity Research Analyst)
Thank you, David.
David Simon (Chairman, CEO and President)
Thank you.
Operator (participant)
Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.
Ronald Kamdem (Managing Director)
Great. Just a quick one on the $500 million development starts. If you could just talk about sort of the opportunities there, and do you sort of still see opportunities to go on offense on sort of the mall space, given that fundamentals are coming back and we know that there's gonna be, you know, peers looking to sell assets? Are there opportunities and appetite to go on offense on sort of buying more assets? Thanks.
David Simon (Chairman, CEO and President)
Sure. You know, I think, you know, we've seen rates more or less stabilize now. You know, there was a volatility prior to that, where it was hard to predict. Now, you know, we're not anticipating a reduction in rates, but at least we feel like, you know, we're in a more or less a stable rate environment. That makes it easier to make investment decisions. So I would break it up into two buckets. The first bucket being our redevelopment effort, and most of that, frankly, is mixed use in our properties, and we feel very bullish on that. Remember, you're talking about bringing on... If it's a 2-3-year process, you're talking about bringing on product in 2-3 years, not gonna be any supply.
We do a very good job of understanding supply and demand. The new, better product always wins. So, we are unabated in our mixed use, and we'll be doing some multifamily development, you know, both in Brea and Orange County, and as I mentioned, we just signed our GMP at Northgate Station to build about 300 units as part of that whole redevelopment. So that really goes unabated. That, when you get to the external, you know, external new deal environment, I would say, you know, we have a lot of opportunities ahead of us, and I think our job is just to prioritize, make sure we're valuing the opportunities right, and we don't take our eye off the ball, you know, with what we're doing with our existing portfolio.
Long story short, I probably would venture to say that there could be more external opportunities for us, but again, it's got to be great quality and at a fair price and assets where we think our expertise can add cash flow growth to them.
Ronald Kamdem (Managing Director)
Thank you.
David Simon (Chairman, CEO and President)
Thank you.
Operator (participant)
Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith (US REITs Analyst)
Good evening. Thanks a lot for taking my question. David, you highlighted the health of the consumer. Seems like doing all right or managing through the environment. Just given your positioning, the occupancy gains and the pricing power that you have, if there was some sort of macro slowdown, how do you think you would be able to navigate it? Or maybe said another way, do you think the business has become a little bit less macro sensitive as you've, as there's been consolidation and you've kind of become the place where you've reached consumers in that luxury space? Thanks.
David Simon (Chairman, CEO and President)
Sure. Look, we are, make no mistake about it, we are not immune to the macro environment. So, we would, you know, have to deal with it, both from, you know, if it ultimately led to less consumer spending and more retail client stress. We're not immune to it. However, and this is a big, you know, the big underline from my standpoint, I have always felt like we've done our best work, you know, when others are, you know, dealing with the macro environment. So, you know, and as I mentioned to you, we have $11 billion of that liquidity in our comments earlier. So, I think...
when and if, and frankly, I mean, you know, realistic to assume we may go through a reasonable slowdown here coming up. I think that's when we do our best work. That's when others get tired and throw in the towel. That's where we get rejuvenated. Hopefully, we're rejuvenated now, but this is when we really get motivated, and I, you know, as I think back, and I've had the luxury of being in this spot for 30 years, I think we do our very best work, you know, when, you know, when the times get tough. So I'm not wishing that on us or anyone, but it's a realistic probability. We won't be immune for it, but that, I think, will further separate this company from our peers.
So, that I know. That I have 100% confidence in that. If that does happen, you know, we'll have further, further separation.
Michael Goldsmith (US REITs Analyst)
Thank you very much.
David Simon (Chairman, CEO and President)
Thank you.
Operator (participant)
Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Alexander Goldfarb (Managing Director and Senior Research Analyst)
Hey, good afternoon out there. David, just wanna go back to Caitlin's question. In response to the retailers, you said that it brings a lot of volatility. Obviously, we all like volatility the right way, but you can't deny that you guys have made a ton of money, $ billions, from these retailer investments. Yes, they are volatile, but they've been lucrative. So just wanna get a better sense, you know, is the Express model sort of a future where you guys will participate, if you put in no capital? Or just trying to understand how you weigh the money that you've made versus, you know, the short term or the quarterly earnings volatility, 'cause clearly, it's been a source of success for you.
David Simon (Chairman, CEO and President)
Yeah, that's a—you know, it's interesting, Alex. It's a very good question, and I think, honestly, we really focus on, you know, to the extent we do put in fresh capital, we, in addition to understanding what it means for our overall business, and, you know, the totality of our company, it's also absolutely driven by, you know, return on investment, just like, you know, building a new shopping center. So... And again, yes, we have volatility, but in the scheme of things, again, and the fact that we've made money, I hope most folks are understanding that the volatility is really on the margin. And I'll just give you a good—a good example of, you know...
Again, we take, you know, FFO, as you know, is net income plus depreciation. Well, you know, the contribution we get from our retailers is net income, which is fully burdened by depreciation, so there's no add back. But to give you a simple analysis on, you know, on just ABG as an example. So we cleared $1.45 billion of cash, and that produced about $0.08 of earnings 'cause, you know, we just picked up our share of net income. We only got. We only, as a shareholder there, we only would get tax distribution. It's, you know, it's a Subchapter S, essentially. So we'd only get our tax distributions, which amounted to $2 million a quarter, so that's $8 million.
If you take the $1.45 billion, and you invest it in the bank at 5.5%, that's $70 million. So we went from $8 million in cash flow to $70 million just selling that. So, you know, we look at every aspect of it, pre-tax, after tax. What does it mean to the portfolio? What is... You know, we don't want, you know, we don't want volatility, but we'll have, you know, we'll, we'll certainly accept it if we think it's gonna be a good investment. And, it all kind of goes into, you know, the analysis. We understand the market is not thrilled with it, so we try to also do it in a way that really, really does not make it, you know, the, you know, the story.
It is on the margin, and it will always be on the margin, but, but, you know, but we do think we can add value to the enterprise by some of these investments. And, you know, the each investment is so idiosyncratic that it's hard to say, you know, again, if, if Express happens, it's hard to say that that's the new model because I, I don't, I don't know that I can say that. I think every one of these things is somewhat idiosyncratic, but, you know, we, you know, we do have the opportunity to do more than, you know, lease space in, you know, in, Alabama someplace, or, you know, you know, that's what this company's all about.
We do more, you know. You know, we're in South Korea, we're in, you know, we're in Jakarta, we're, you know, we're building in Tulsa, we're, you know, we're building apartments in Seattle. So, I mean, I'm waxing a little bit here, but I, you know, we think of ourselves broader than I think the market thinks of us. That's incumbent upon us, and I think our disclosures have gotten better over time. I hope you agree, Alex, on OPI, so you could see it, not to detract from real estate, but at the same time, you know, we're somewhat different than when you line us up to, you know, others that do some of what we do.
Alexander Goldfarb (Managing Director and Senior Research Analyst)
Well, that, and that was the point, that you guys have this special thing. You know, it's sort of like Kimco has their unique retailer thing, and it'd be a shame to do away with it if it was just volatility, because clearly, it's made you, you know, a lot of cash. So thank you for the answer.
David Simon (Chairman, CEO and President)
Thank you, Alex.
Operator (participant)
Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question.
Craig Mailman (Director and Equity Research Analyst)
Thanks. It's next year, superior with Craig. David, I just wanted to ask on kind of the opportunity and the to roll out additional luxury either VIP suites or retailers. We saw what you did at Woodbury, and I'm just curious on the opportunity for the remainder of the portfolio and what kind of demand do you think that will drive from some of these higher income clientele that you're seeking?
David Simon (Chairman, CEO and President)
Listen, I think we've got a great portfolio, you know, of real estate that is focused on, you know, the very high income consumer. And I think, you know, we need to step up our game in all the services that need to be provided to that consumer. And I think Woodbury, Sawgrass, are just the beginning of an effort to really, you know, I can't think of the right word, but really entertain that consumer to make it really special. And it's all the services that they're accustomed to. It's the fine dining, it's the ease of, you know, access. It's right, having the right retailer mix. So, we probably have around 20-25 properties that are, that have this high...
You know, our centers are really big, so they obviously appeal to, you know, a broader range of consumers, which is the way we like it, because, you know, that's also, you know, you diversify the ebbs and flows. But that, but those 20-25 centers really need special attention. We've got a great team that's dedicated to them. And, you know, as in many cases, we're the preferred or, or, you know, certainly a meaningful landlord to, you know, to the best retailers in the world, and we wanna, we definitely wanna stay in that spot. So, a big push for us to step up our game when it's dealing with the the very high-end consumer on all sorts of all sorts of levels.
So I think what happens at Sawgrass with the Oasis and the Colonnade, and you know what already happens at Woodbury, but you know we're just stepping up our game will happen at Houston and King of Prussia. And you know if you saw what we did at Phipps and Atlanta, and you know what's going on at Boca Raton in Florida, you know just to name a few that jump out at me is really really a high priority for the company.
Operator (participant)
Our next question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your question.
Floris van Dijkum (Senior REIT Analyst)
Hey, thanks. David, I was gonna ask you about luxury, but I was pipped. So, instead, I'm gonna ask you about capital recycling. Presumably, your guidance, I mean, you just cleared, you know, $1.2 billion on the ABG sale, sitting there in cash, and obviously, you do have some ongoing, you know, development, but those are essentially funded from your retained cash flow, if you will. So the guidance assumes is that that cash sits there uninvested essentially for the rest of the year, or is there further upside, I guess, is what I'm getting at, if you were to do something else with that cash to redeploy that into higher yielding investments?
David Simon (Chairman, CEO and President)
Yes, good, very good question. It's you know, we you know, we cleared in two months, $1.05 billion, as you know, Floris, so I just wanted to mention that. But yeah, right now, our guidance just assume it sits in the bank and you know, or pays down debt. But that's basically it. So no really, you know, no real you know, redeployment is contemplated in our numbers at this point. Brian, if you want to add anything?
Brian McDade (CFO)
Yeah, no, that's right. We just assumed that we would hold the cash for the time being, and, you know, we have debt maturities coming due here in September and October, and so we could use the cash on hand to fund that. We also are carrying cash from our capital markets activities last year. So, the combination of it will address our upcoming maturities.
Floris van Dijkum (Senior REIT Analyst)
Thanks.
David Simon (Chairman, CEO and President)
Thank you.
Operator (participant)
Our next question comes from the line of Vince Tibone with Green Street. Please proceed with your question.
Vince Tibone (Managing Director)
Hi, good evening. Could you elaborate on the charges taken in the first quarter related to SPARC and J.C. Penney? And then possibly related to that, kind of what is your near-term outlook in terms of J.C. Penney store closures, just given foot traffic trends in recent years have not been great. So just curious how long, you know, you think the current store count and fleet is sustainable?
David Simon (Chairman, CEO and President)
Yeah, the charges pre-tax were $33 million, so not, you know, most... It's kind of funny, Vince, because, you know, most charges are in the hundreds of millions of dollars. So I think you have to put it in perspective. But with that said, it really dealt with, you know, personnel and inventory. So that were the, that were the two, you know, primary, factors, and more really on the inventory side, because we, you know, we had some clearance inventory that, you know, that, in SPARC, it was really focused on F21 and the, and Penney, just on basically clearing out some inventory. So, you know, Penney, we're pleased with Penney. I'll just talk a moment about the store closings.
You know, they're very interesting. They don't... Penney is able to produce positive EBITDA, even if there's, you know, not high sales. I think they do, you know, out of the box. So I don't really... In fact, I think Penney almost can be a beneficiary opening new stores, as opposed to closing stores. I'm sure there'll be a few here and there, but, you know, most all of their stores are, you know, positive EBITDA, and so they have a very good way of having positive EBITDA out of, what I call low volume stores. And again, this is what's interesting to us, you know, Penney's not public, so you, you know what matters to me, Vince?
Cash flow, EBITDA, and, you know, the obviously, sale, comp sales are important, right? But you know, but as long as we're profitable out of the stores, you know, there's no Wall Street pressure that we've got to, you know, narrow the store count. You know, I don't necessarily believe shrink to grow. It's very hard to achieve. Maybe you can achieve it. It's, you know, my history, not overly long, but, you know, long enough. It's, you know, I don't care what industry, it's very hard to do. Some have done it, but you know, but to me, if it's got positive EBITDA, there's nothing wrong with maintaining that store for the community.
You certainly don't want to lower standards of how you operate it, but, you know, if you can create cash flow, doesn't necessarily mean you have to reinvest that much in it, and you can use that cash flow to reinvest in other elements of your business. So, long story short, I really don't anticipate, you know, much portfolio real estate activity at the JCP level.
Vince Tibone (Managing Director)
No, that's really helpful color. Maybe I just have a quick follow-up on that. I'm just curious, given the ownership structure, I mean, are you guys able to pursue recapturing some of these boxes, you know, at your best properties to unlock, you know, mixed-use development opportunities? Or how would that work, given your split ownership with Brookfield?
David Simon (Chairman, CEO and President)
Yeah, well, look, I think as part of the deal, originally, first of all, our relationship with Brookfield is excellent, and, you know, we both basically, and ABG's an investor in there as well, but we very much see eye to eye on JCPenney and how it operates, how we should operate it. And I would say both of us, you know, now my memory is a little bit cloudy, but when we did the restructuring, we did get, both of us got the opportunity to reclaim or, you know, reclaim certain space from JCPenney that we could redevelop.
So it's a good question, and the fact is, we're about to embark upon one that you'll see an announcement in the near future, where it—we are, you know, we are gonna ultimately redevelop a JCPenney at one of our centers. So, yeah, and I don't remember the exact count. I don't remember exactly how much Brookfield, but as part of the bankruptcy process and negotiation with each other, we did give each other the right to do that. And so what happens there is we get notice to the company. It's already documented, then we get the. We, you know, and we can, in this case, it's a lease, so there's nothing to pay. We just cancel the lease.
Now, obviously, store's a little bit profitable, very profitable for JCPenney, so we're gonna have to find them some new opportunities to make up for it, but, you know, that's all part of the, part of the deal. So I think there'll be a handful like that, both from us and Brookfield, that we'll be able to do. But, and again, that was all prenegotiated. To the extent that there's one that wasn't part of that negotiation, you know, that's pretty, you know, given our relationship with Brookfield, pretty, pretty straightforward. We come up with a value, or they come up with a value. You know, obviously, the JCPenney management team would have to be part of that, and, you know, they, they would get the appropriate value to, to redevelop that, that project.
Vince Tibone (Managing Director)
No, thank you. All great color.
David Simon (Chairman, CEO and President)
Thank you.
Operator (participant)
Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Juan Sanabria (Managing Director of US Equity Research)
Hi, good afternoon. Just hoping to ask about the watchlist or bad debt. I believe you said you'd assumed 25 basis points last quarter. Has that changed now at all? And if so, maybe if you could break out the Express impact. And in your prepared comments, you talked about sales on a per sq ft basis being flat, stripping out two tenants. Just curious on the color of why those two tenants were stripped out, if there's any interesting-
David Simon (Chairman, CEO and President)
Yeah, let me, let me answer that. I think the two tenants—I mean, it. Even if we didn't, I think it's just color for you to know that generally, you know, the portfolio was flat. We don't like to name tenants, so we don't, you know, focus on it. I'd also, I think, point out to you, the most important thing we look is total volume, and we were up quarter-over-quarter. What was the number again? 2 point-
Adam Roy (Chief Accounting Officer)
Two, three.
David Simon (Chairman, CEO and President)
2.3%. That's really the number we look at. And again, remember, these are reported sales. We can get into this whole diatribe about, you know, some of the, some of the retailers, credit their sales with internet returns. So it's just information, okay? Do what you want with it, but it's just information. But our sales, if you include the two retailers, the last 12 months, was down 1.8% on a rolling 12. But total, 'cause not all those are comp, total was up 2.3%, which is the more important number. Now, we'd also, just to, and Brian can add in here, now that I'm talking, I might as well just finish.
You know, we don't as part of our discussion, we don't—we'll never get into a retailer-specific response. But, you know, obviously, bankruptcy for tenants has a lot of, you know, a lot goes on. Leases have to be rejected, you know, and depending on where they were on that, and what happened. So, we, in our comp NOI, we have our bad debt expense. I think I gave you some color. We still feel like, you know, it's achievable, so... But again, I don't think, and then Brian can add, we're not gonna really give you color too much on Express, but we do put in...
You know, when we model our business, you know, for the year, we do put in, you know, unforeseen circumstances, and we try to, you know, budget appropriately, for retailers that are under pressure. And in this case, we kinda knew Express was in that spot. But, you know, a lot remains to be seen how Express comes out of bankruptcy and the ultimate financial impact.
Juan Sanabria (Managing Director of US Equity Research)
Thank you.
David Simon (Chairman, CEO and President)
Thank you.
Operator (participant)
Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.
Haendel St. Juste (Managing Director)
Hey, good evening. Thanks for taking the question. A quick two-parter here. First, I wanted to follow up on Floris's question on the uses for the cash from the retail monetization. The stock's $35 are still higher than what you lost back, so I assume it's fair-... Is that fair to assume that buying back stock is less likely here? And are there any special dividends that need to be paid on that gain? And then my second part of the question is, we noticed that the TRG property count dropped to 18 properties versus 20 last quarter. What happened there? Thanks.
David Simon (Chairman, CEO and President)
I'll let Brian. You can. I hope you can answer all these. I expect you to.
Brian McDade (CFO)
I can. With respect to TRG, there were two properties. One was a partner buying out our interest. So, the property count went down by two in the quarter. With respect to-
David Simon (Chairman, CEO and President)
Well, tell them the two.
Brian McDade (CFO)
Fair Oaks and Country Club are the two assets that are, that when the partner is buying us out or bought us out. With respect to capital on the balance sheet, certainly, you know, it's a capital allocation decision relative to stock buyback. But, you know, with the amount of capital that we are generating, both free cash flow and what's on our balance sheet, it is still an appropriate use of capital throughout the balance of the year, and would expect that we would have interest in buying back our stock at certain levels.
David Simon (Chairman, CEO and President)
Yeah, and I would just add to that, you know, the ABG sale happened. I don't remember exactly, but near quarter end.
Brian McDade (CFO)
Yeah.
David Simon (Chairman, CEO and President)
And we were, you know, blacked out from that because of Q1 earnings. So I wouldn't read that the fact that it's sitting on the balance sheet to, you know, read too much into that.
Brian McDade (CFO)
Yeah.
Haendel St. Juste (Managing Director)
Got it. Appreciate that. The special dividend, anything on that front that we should be aware of?
Brian McDade (CFO)
There is no required special dividend. This interest was owned in our taxable REIT subsidiaries, so there will be a tax payment actually due, not actually a special dividend.
Haendel St. Juste (Managing Director)
Got it. Got it. Thank you.
Operator (participant)
Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Linda Tsai (Senior Equity Research Analyst)
Hi. Thanks for taking my question. A two-parter.
David Simon (Chairman, CEO and President)
Sure.
Linda Tsai (Senior Equity Research Analyst)
Appreciate the fact that you won't provide capital to Express, but could you just give more color on how you would be providing assistance to the brand?
David Simon (Chairman, CEO and President)
Well, I think, you know, obviously, there is a couple of elements. The first, the most important one is that, you know, we have the history of running a retailer coming out of bankruptcy. So I think, for better or worse, I think it's better, but, you know, others may not agree with me. You know, there's a certain expertise in doing that, and, you know, we have it. And I think, what our potential partner sees on that is, you know, is that, that we can bring to the table. So I wouldn't underestimate that. That's one. Number two is, as part of any bankruptcy, you know, we're gonna have a lease negotiation. Some leases will get, you know, restructured, some won't.
Some will pay, you know, what the existing rent is, and so on. So but that's that, that happens regardless of whether or not we're involved or not. So that's just part of the bankruptcy process. We go space by space and find out, you know, we kind of find out, you know, what we'd like to do, maybe short-term leases, you know, so on and so forth. But that. But we're not alone in that. Any other landlord will, you know, will have to come to their own conclusion on what they, you know, what they want to do if part of rent adjustment is necessary to get the brand on solid financial footing.
Linda Tsai (Senior Equity Research Analyst)
Do you have any clarity on the store closures at all? Because one of your much smaller peers expects to close 65% of its stores in 2Q.
David Simon (Chairman, CEO and President)
You know, we are not involved in that process. That's really, that's really management. So I have no point of view or no opinion on that at all. That whole process is part of... We really won't get involved until we're approved as the stalking horse bidder. So that all that's going on today, with the DIP and everything else, is all part of, it's all the existing management team. We have no involvement in that whatsoever.
Linda Tsai (Senior Equity Research Analyst)
Thank you.
David Simon (Chairman, CEO and President)
Sure.
Operator (participant)
Our next question comes from the line of Mike Mueller with J.P. Morgan. Please proceed with your question.
Speaker 18
Yeah. Hey, guys. It's Hong on for Mike. I guess I was wondering, can you give us an idea of what tenant categories you're seeing most of the demand from in your malls? I'm just wondering if it's broad-based and/or how much of it is apparel versus the other categories.
David Simon (Chairman, CEO and President)
Honestly, it's across the board. Restaurants, entertainment-
Leisure, sports related, you know, it's the bigger boxes, the Uniqlo's, Primark's of the world, Zara. You know, it is, you know, it is, you know, this is where I give a shout-out to Rick because he used to-
Brian McDade (CFO)
Yeah
David Simon (Chairman, CEO and President)
... used to go through it, but, you know, we're seeing it. You know, Abercrombie, we're doing a lot of new opportunities with Mango, Golden Goose, just to name a few, KnitWell, JD Sports-
Alo, you know, Lululemon's growing with us, upsizing a lot of properties. Arhaus is a great company that we're doing, you know, business with, Pinstripes, a number of restaurants, restaurateurs. It, you know, it's very, very, very encouraging because it's so, it's so, diverse.
Speaker 18
Got it. If I could sneak one other question in. I guess the $745 sq ft sales, is that portfolio weighted or NOI weighted?
David Simon (Chairman, CEO and President)
Portfolio weighted. I'm sorry, just portfolio, pure. If it was NOI weighted, we, we used to do that. It's like 950-
Brian McDade (CFO)
Nine...
David Simon (Chairman, CEO and President)
Huh? Higher?
Brian McDade (CFO)
9:50 ±.
David Simon (Chairman, CEO and President)
Okay.
Brian McDade (CFO)
Yes.
David Simon (Chairman, CEO and President)
Okay, 9:50, thereabouts.
Speaker 18
Perfect. Thanks.
David Simon (Chairman, CEO and President)
Sure.
Operator (participant)
Our next question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.
Greg McGinniss (Director)
Hey, David. Good afternoon. Just been looking at the volatility in the retail investments. What are the drivers to keep, you know, SPARC and J.C. Penney on balance sheet as opposed to the ABG investment? And would you look to sell those in the near future?
David Simon (Chairman, CEO and President)
Well, again, they're equity accounted, so they're really not on our balance sheet, just to, you know, just to make it clear. So they're investments in them. Listen, they are, we built a company where everything is core and nothing is core. So, you know, we saw ABG, we got an offer, we hit the bid. I would view that for any and all assets that we have, whether it's J.C. Penney, SPARC, XYZ Mall. You know, call Uncle David and, you know, not most people don't hit my bid, but, you know, the only thing that's core is, you know, the company and its people and its balance sheet, but every other asset's for sale at the right price. So nothing is critical long term.
And again, you know, look, guys, we're talking about volatility, and the reality is, you know, the volatility has been mostly on the upside. And again, we're, you know, a company that earns $12, and we're talking about, you know, $0.10 here or there. So it's. I just want to put everything more or less in perspective. But, there's nothing, nothing that I wouldn't sell at the right price across the company and worldwide, period, end of story. Because I, you know, and it's, and it's very simple. You know why? Because if we got the cash, I know we would find, you know, an appropriate investment that that would, you know, replace the earnings lost. It's really that simple. Or we give it to the shareholders, or we buy our stock back.
You know, I am at the point of the highest level of indifference about monetizing an asset, as you'll see.
Greg McGinniss (Director)
Great, thanks for the color.
David Simon (Chairman, CEO and President)
Sure.
Operator (participant)
Thank you. We have reached the end of our question and answer session, and with that, I would like to turn the floor back over to Mr. David Simon for any closing comments.
David Simon (Chairman, CEO and President)
Okay, thank you. I'm sorry, we, I know it's the end of earnings season. We always have—we're always late in the Q1 because we tie it to our annual meeting next on Wednesday. But thank you for your interest and your questions. Very good questions. Appreciate it. Thank you.
Operator (participant)
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
