Simon Property Group Inc

NYSE:SPG

Earnings Call Analysis

Strong Quarter with Increased Guidance and Significant Investment Gains

Simon Property Group reported a strong Q1 with funds from operations (FFO) of $1.33 billion, up from $1.03 billion a year ago. Domestic property NOI grew 3.7%, and portfolio NOI, including international properties, grew 3.9%. The company saw significant gains from selling its stake in Authentic Brands Group, generating $1.45 billion. Mall occupancy increased to 95.5%, and average rent rose 3%. Simon raised its full-year guidance to $12.75-$12.90 per share from $12.51 last year. The company also announced an 8.1% increase in its quarterly dividend to $2 per share. New developments are underway, including residential projects and international expansions .

Strong Start with Impressive Growth

The quarter began on a positive note, with the company reporting funds from operations (FFO) of $1.33 billion, or $3.56 per share, compared to $1.03 billion, or $2.74 per share, in the same period last year. This growth was driven by an increase in rental income and gains from investment activities amounting to $0.75 higher year-over-year. The core real estate business saw FFO of $2.91 per share, reflecting a 3.2% growth over the prior year. These results were bolstered by resilient consumer spending and operational excellence.

Leasing Momentum and Occupancy Rates

The company maintained strong leasing momentum, signing over 1,300 leases covering approximately 6.3 million square feet, with new deals making up 25% of the activity. This impressive leasing activity contributed to a mall occupancy rate of 95.5%, a 110-basis point increase year-over-year, and a Mills occupancy rate of 97.7%. Additionally, the average base minimum rent for malls and outlets increased by 3%, and by 3.8% at the Mills.

Retail Sales and Tourist Property Performance

Retail sales volume across the portfolio increased by 2.3% compared to the previous year, with tourist-centric properties outperforming the average with a 6% increase in sales. Reported sales per square foot in the first quarter remained flat year-over-year at $745, but reached an all-time high for the premium outlet platform, excluding sales from two unnamed retailers.

Investment Activity and Strategic Sales

The sale of the remaining interest in Authentic Brands Group (ABG) resulted in significant gross proceeds of close to $1.2 billion, adding to the $1.45 billion from combined sales in the fourth and first quarters. This investment achieved a 7x multiple on net invested capital, demonstrating the company’s capability to generate substantial value from strategic sales.

Future Guidance and Dividend Increase

Looking ahead, the company increased its full-year guidance for 2024, projecting FFO in the range of $12.75 to $12.90 per share, up from $12.51 last year. This represents an increase of $0.90 at the lower end of the range and $0.85 at the midpoint. Additionally, a dividend of $2 per share was announced for the second quarter, reflecting an 8.1% year-over-year increase, payable on June 28.

Development and Redevelopment Projects

The company is actively engaged in significant development and redevelopment projects, with new openings like the AC Hotel at St. John Center and the upcoming Tulsa Premium Outlets. Furthermore, international expansions include a significant project in South Korea. The company’s share of net development and redevelopment costs was $930 million at a blended yield of 8%. Additional construction projects, such as a residential project at Northgate Station in Seattle, are set to commence soon.

Balance Sheet Strength and Financial Flexibility

The company retired $600 million of senior notes in the quarter, ending with approximately $11.2 billion in liquidity. This strong financial position provides flexibility to manage upcoming maturities and invest in strategic opportunities while maintaining the commitment to buying back stock and evaluating high-yielding investments.

Resilience in Consumer Spending and Retail Strategy

Despite a challenging macroeconomic environment, consumer spending has shown resilience, particularly in high-income segments and tourism-driven centers in regions like California and the Northeast. This trend bolstered the overall performance, with traffic increasing by 2% for the first quarter. The company remains confident in its ability to manage and thrive even amidst unfavorable macroeconomic conditions.

Opportunistic Investments and Retail Partnerships

The company continues to explore opportunistic investments, such as the potential involvement in the turnaround of Express. With no capital investment required, the company leverages its retail expertise to add value and drive strategic outcomes, showcasing the ability to navigate volatile earnings scenarios while focusing on long-term profitability and brand strength.

Earnings Call Transcript 2024-Q1

[Operator]

Greetings, and welcome to the Simon Property Group First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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.

[Thomas Ward, executive]

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 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 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 1 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 1 question.

I'm pleased to introduce David Simon.

[David Simon, executive]

Good evening. We're off to a good start with results that exceeded our plan. First quarter funds from operation 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 '23. 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 $0.02 after-tax lower contribution compared to last year.

Funds from operation from our real estate business was $2.91 per share in the first quarter compared to $2.82 in the prior year period, a 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 onetime restructuring charges at SPARC and JCPenney. Excluding these onetime 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 the year-end closing process. They were not budgeted.

Mall and 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 than 1,300 leases for approximately 6.3 million square feet. 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 2 retailers -- retail sales per square foot from our premium outlet platform reached an all-time high this quarter.

Occupancy costs 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 pretax 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, onetime in nature at SPARC and Penny 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 to $0.15.

For your reference, we budgeted the -- 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. John Center. We are opening [ Tulsa ] Premium Outlets this summer, leasing is going great. and we have a significant expansion at [indiscernible] 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 internationally 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 28. And 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 our full year guidance of 2024 in the guidance range of $11.85 to 12 -- I'm sorry, -- let me restate that. We're increasing our range to $12.75 to $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 is kind of moving in all the right directions.

Thank you. We're ready for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Caitlin Burrows with Goldman Sachs.

[Caitlin Burrows, analyst]

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 the Simon 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, executive]

Well, 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 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 what we've been -- what we've done in the past with SPARC. And because we have always valued Express as a retailer and as a client, we jumped at the opportunity.

So we don't expect we expect to be -- it's got to go through bankruptcy process, and 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 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 comfortable that Express is a good company and it's a great brand and we can add value to it. And given the fact that we were able to hopefully turn around the retailers save jobs, create value from our investment. It's -- we see it as a win-win situation with no capital from our standpoint.

[Operator]

Our next question comes from the line of Jeff Spector with Bank of America.

[Unknown Analyst]

This is [indiscernible] 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 some good outperformance from -- 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?

[David Simon, executive]

Sure. We feel very bullish on our portfolio in general. And then obviously, our tourist centers, especially in California and in the Northeast are starting to finally see the improvement that we have been seeing for quite some time in Florida. And 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 currency does have a an effect -- kind of a inhibitor effect. But even with that said, domestic tourism continues to excel. And I think people, at the end of the day, the as part of -- when they go on holiday, they love shopping as part of that experience, dining, shopping, being with their families and as I said earlier, I mean, we feel like the mall has made a big comeback -- physical stores or where it's happening. We're seeing a resurgence and reinvigoration of that whole product.

So we're pleased it's kind of where we're seeing things. So certainly, the lower income consumer has been under pressure now for quite some time. We're very focused on that. Obviously, inflation has taken its toll. And even though inflation is moderating, the prices that the lower income consumers deal dealing with are quite daunting.

So we'll continue to see volatility in that area we anticipate. We're hoping that their cost of living moderates and to some extent, their wages go up or the cost of living goes down, so we can see more of a discretionary income there. the higher-income consumer continues to spend and visits properties and it's good. And a good example of that is our traffic for the first quarter, I think, was up around 2% for the year right, guys?

[Unknown Executive]

Yes.

[David Simon, executive]

So that's also a very good sign.

[Operator]

And our next question comes from the line of Samir Khanal with Evercore.

[Samir Khanal, analyst]

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 has been strong, but we've also seen some announcements from Express Route 21. I guess how do you feel about that guide today.

[David Simon, executive]

Yes. Look, we don't update that as you probably know, I think you know, we don't -- that's our goal for the year. We don't update it every quarter as some others might. But we still feel like that's -- even though we've got some unanticipated to some extent, I mean, we do create 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 our initial guidance on that is very achievable. So we don't update it every quarter, but if we didn't feel like we could achieve it, I think we would we would highlight that. But we don't see that even with some of the -- I mean, we might not overachieve as we always want to but I think we can still deliver the initial guidance.

[Operator]

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

[Ronald Kamdem, analyst]

Great. Just a quick 1 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 that there is going to be peers looking to sell assets? Are there opportunities and appetite to go on offense on sort of buying more assets?

[David Simon, executive]

Sure. I think we've seen rates more or less stabilized now. There was a volatility prior to that. We're -- it was hard to predict now. We're not anticipating a reduction in rates, but at least we feel like we're at a more or less a stable rate environment, that makes it easier to make investment decisions. So I would I would break it up into 2 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- to 3-year process, you're talking about bringing on product in 2 to 3 years, not going to be any supply. We do a very good job of understanding the 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 both in Bray 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 new deal environment, I would say, 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 with what we're doing with our existing portfolio.

So 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 is at a fair price and have assets where we think our expertise can add cash flow growth to them.

[Operator]

Our next question comes from the line of Michael Goldsmith with UBS.

[Michael Goldsmith, analyst]

David, you highlighted the health of the consumer? It 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, do you think -- 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 -- as there's been consolidation and you've kind of become the place where you where you've reached consumers in that luxury space?

[David Simon, executive]

Sure. Look, we are -- make no mistake about it. We are not immune to macro -- the macro environment. So we would have to deal with it, both from 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 -- the big underlying from my standpoint. I have always felt like we've done our best work when others are dealing with the macro environment. And as I mentioned, we have $11 billion of liquidity and our comments earlier. So I think when and if -- and frankly, I mean, it's 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 as I think back and I had the luxury of being in the spot for 30 years, I think we do our very best work 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 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, we'll have further separation.

[Operator]

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb, analyst]

David, I just want to 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 in the right way. But you can't deny that you guys have made a ton. I guess I could use a French word to describe the tone, but you guys have made a ton of money, billions from these retailer investments. Yes, they are volatile, but they've been lucrative. So I just want to get a better sense, 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 the short term or the quarterly earnings volatility because clearly, it's been a source of success for you.

[David Simon, executive]

Yes. That's -- it's interesting, Alex. It's a very good question. And I think, honestly, we really focus on -- to the extent we do put in fresh capital, we -- in addition to understanding what it means for our overall business, and the totality of our company, it's also absolutely driven by return on investment, just like building a new shopping center.

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 example. And again, we take FFO, as you know, is net income plus depreciation. Well, 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 just ABG as an example. So we cleared $1.450 billion of cash. And that produced about $0.08 of earnings because we just picked up our share of net income. We only got -- we only as a shareholder, the only -- we only would get tax distribution. It's a subchapter as essentially. So we'd only get our tax distributions, which amounted to $2 million a quarter. So that's $8 million. And if you take the $1.450 billion and invested 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 we look at every aspect of it, pretax, after-tax, what does it mean to the portfolio, what is -- we don't want volatility, but we'll have -- we'll certainly accept it if we think it's going to be a good investment. And it all kind of goes into the analysis. We understand the market is not thrilled with it. So we try to also do it in a way that really does not make it the store. It is on the margin, and it will always be on the margin. But but we do think we can add value to the enterprise by some of these investments.

And each investment is so idiosyncratic that it's hard to say, again, if Express happens, it's hard to say that, that's the new model because I don't know that I can say that. I think every 1 of these things is somewhat idiosyncratic, but we do have the opportunity to do more than lease space in Alabama someplace. That's what this company is all about. We do more -- we're in South Korea, we're in -- we're Jakarta. We're building in Tulsa, we're building apartments in Seattle.

So I mean I'm waxing a little bit here, but I -- 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 relax on OPI, so you could see it not to track from real estate, but at the same time, we're somewhat different than when you line us up to others that do some of what we do some of what we do.

[Alexander Goldfarb, analyst]

And that was the point that you guys have this special thing. It's sort of like Kimco has their retailer unique thing and it'd be a shame to do away with it if it was just volatility because clearly, it's made you a lot of cash.

[Operator]

Our next question comes from the line of Craig Mailman with Citi.

[Nicholas Joseph, analyst]

It's Nick Joseph here for Craig. David, I just wanted to ask on kind of the opportunity and 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, executive]

Listen, I think we've got a great portfolio of real estate that is focused on the very high income consumer. And I think 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 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 access. It's right -- having the right retailer mix.

So we probably have around 20 to 25 properties that are -- that have this high -- our centers are really big, so they obviously appeal to a broader range of consumers, which is the way we like it because -- that's also 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 in many cases, we're the preferred or certainly a meaningful landlord to the best retailers in the world. And we want to -- we definitely want to stay in that spot.

So a big push for us to step up our game when it's dealing with the very high-end consumer on all sorts of levels. And so I think what happens at Sawgrass with the Oasis and The Colonnade what already happens at Woodbury but we're just stepping up our game will happen at Houston and [indiscernible]. And if you saw what we did at Phipps and Atlanta and what's going on at [ Boca Raton ] in Florida. Just to name a few that jump out at me is really, really a high priority for the company.

[Operator]

And our next question comes from the line of Floris Van Dijkum with Compass Point.

[Floris Gerbrand van Dijkum, analyst]

David, I was going to ask you about luxury, but I was [indiscernible] I'm going to ask you about capital recycling. Presumably, your guidance -- I mean, you just cleared $1.2 billion on the ABG sale, sitting there in cash. And obviously, you do have some ongoing development, but that essentially funded from your retained cash flow, if you will. So the guidance assumes is 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, executive]

Yes. Very good question. I we cleared in 2 months, $1.450 billion, as you know, Floris. So I just wanted to mention that. But yes, right now, our guidance just assume it sits in the bank, and or pays down debt. But that's basically it. So no really no real redeployment is contemplated in our numbers at this point. Brian, if you want to add anything?

[Brian McDade, executive]

Yes. No, that's right. We just assumed that we would hold the cash for the time being. And 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 were carrying cash from our activities -- our capital markets activities last year. So the combination of it will address our upcoming maturities.

[Operator]

Our next question comes from the line of Vince Tibone with Green Street.

[Vince Tibone, analyst]

Could you elaborate on the charges taken in the first quarter related to SPARC and JCPenney? And then possibly related to that, kind of what is your near-term outlook in terms of JCPenney store closures, just given foot traffic trends in recent years has not been great. So just curious how long you think the current store count and fleet is sustainable?

[David Simon, executive]

Yes. The charges pretax were $33 million. So not most -- it's kind of funny -- because you know most charges are in the hundreds of millions of towers. So I think you have to put it in perspective. But with that said, it really dealt with personnel and inventory. So that were the 2 primary factors and more really on the inventory side because we had some clearance of inventory that in SPARC, it was really focused on F21 and Penny just on basically clearing out some inventory.

So Penny -- we're pleased with Penny. I'll just talk a moment about the store closings. They're very interesting. They don't -- Penny is able to produce positive EBITDA even if there's no -- not high sales, I think they do out of the box. So I don't really -- in fact, I think Penny always can be a beneficiary opening new stores as opposed to closing stores. I'm sure there will be a few here and there, but most all of their stores are 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, Penny's not public. So you know what matters to me Vice, cash flow, EBITDA and that, obviously, sales -- comp sales are important, right? But as long as we're profitable out of the stores, there's no Wall Street pressure that we've got to narrow the store count. I don't necessarily believe shrink to grow. It's very -- it's very hard to achieve. Maybe you can achieve it. It's my history, not overly long, but long enough, it's -- I don't care what industry it's very hard to do. Some have done it by the -- but to me, if it's a 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 if you can create cash flow 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 I don't anticipate long story short. I really don't anticipate much portfolio real estate activity at the JCP level.

[Vince Tibone, analyst]

That's really helpful color. Maybe just as 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 at your best properties to unlock mixed-use development opportunities? Or how would that work given your foot ownership with Brookfield?

[David Simon, executive]

Yes. Well, look, I think as part of the deal originally, first of all, our relationship with Brookfield is excellent in our we both basically -- and ABG an investor in there as well. But we very much see eye-to-eye on JCPenney and how it operates and how we should operate it. And I would say both of us and 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 reclaim certain space from JCPenney that we could redevelop it.

So it's a good question. And the fact is we are about to embark upon one that you'll see an announcement in the near future where we are we are going to ultimately redevelop a JCPenney at one of our centers. So 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 -- we -- and we can -- in this case, it's a lease. So there's nothing to pay. We just cancel the lease.

Now obviously, stores a little bit profitable -- very profitable for JCPenney. So we're going to have to finding some new opportunities to make up for it, but that's all 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 1 that wasn't part of that negotiation, that's pretty -- given our relationship with Brookfield pretty straightforward, we come up with a value or they come up with a value. Obviously, the JCPenney management team would have to be part of that. And they would get the appropriate value to redevelop that project.

[Operator]

Our next question comes from the line of Juan Sanabria with BMO Capital Markets.

[Juan Sanabria, analyst]

Just hoping to ask about -- the watch list or bad debt, I believe you said you had 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 square foot basis being flat, tipping out 2 tenants. Just curious on the color of why those 2 tenants were stripped out, if there's any interesting...

[David Simon, executive]

Yes. Let me answer that. I think the 2 tenants -- I mean even if we didn't -- I think it's just color for you to know that generally, the portfolio was flat. We don't like to name tenants, so we don't 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, 2.3%. That's really the number we look at. And again, remember, these are reported sales we can get into this whole diatribe about some of the retailers' credit or 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 2 retailers the last 12 months was down 1.8% on a rolling 12.

But total because not all those are comp total was up 2.3%. And which is the more important number. Now we'd also -- just to -- and Brian can add in here, now that I'm talking on miles will just finish. We don't -- as part of our discussion. We don't -- we'll never get into a retailer specific response. But obviously, bankruptcy for tenants has a lot of a lot goes on, leases have to be rejected and depending on where they were on that and what happens. So we in our comp NOI, we have our bad debt expense. I think I gave you some color. We still feel like it's achievable. So -- but again, I don't think -- and Brian can add. We're not going to really give you color too much on Express, but we do put in -- when we model our business for the year, we do put in unforeseen circumstances. And we try to budget appropriately for retailers that are under pressure. In this case, we kind of knew Express was in that spot. But a lot remains to be seen how Express comes out of bankruptcy and the ultimate financial impact.

[Operator]

And our next question comes from the line of Haendel St. Juste with Mizuho.

[Haendel St. Juste, analyst]

A quick 2 part here. First, I wanted to follow up on Floris' question on the uses for the cash on the retail monetization. The stock is $35 or so higher than what you lost back. So I assume it's fair 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 game? 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?

[David Simon, executive]

I'll let Brian, you can -- I hope you can answer all these. I expect you to...

[Brian McDade, executive]

I can -- with respect to TRG, there were 2 properties. One was a partner buying out our interest, so the property count went down by 2% in the quarter. With respect to...

[David Simon, executive]

Tell him the 2.

[Brian McDade, executive]

Fair Oaks and Country Club, the 2 assets that when the partner is buying us out or bought us out. With respect to capital on the balance sheet, certainly, it's a capital allocation decision relative to stock buyback. But we -- 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, executive]

Yes. And I would just add to that, the ABG sale happened. I don't remember exactly, but near quarter end. And we were we were 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 read too much into that.

[Haendel St. Juste, analyst]

Got it. Appreciate that. And the special dividend, anything on that front .

[Brian McDade, executive]

There we required special dividend. These were the -- this interest was owned in our taxable REIT subsidiaries. So there will be a tax actual payment due, not actual a special dividend.

[Operator]

Our next question comes from the line of Linda Tsai with Jefferies.

[Linda Yu Tsai, analyst]

I 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, executive]

Well, I think obviously, there is a couple of elements. The first -- the most important 1 is that we have the history running a retailer coming out of bankruptcy. So I think for better or worse, I think it's better, but others may not agree with me -- there's a certain expertise in doing that, and we've we had. And I think what our potential partner sees on that is that we can bring to the table. So I wouldn't underestimate that. That's one.

Number 2 is, as part of any bankruptcy we're going to have a lease negotiation. Some leases will get restructured, some won't. Some will pay what the existing rent is and so on. So -- but 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 -- we kind of find out what we'd like to do, maybe short-term leases, so on and so forth. But that -- but we're not alone in that. Any other landlord will we'll have to come to their own conclusion on what they want to do is part of rent adjustment is necessary to get the brand on solid financial footing.

[Linda Yu Tsai, analyst]

And 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, executive]

We are not involved in that process. 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 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.

[Operator]

And our next question comes from the line of Mike Mueller with JPMorgan.

[Hong Zhang, analyst]

It's Hong on for Mike. I guess I was wondering, can you give us an idea of where -- of what kind of CAGR you're seeing most since the demand from in your malls? Is it -- I'm just wondering if it's broad-based and -- or how much of it is apparel versus the other categories?

[David Simon, executive]

Honestly, it's across the board, restaurants, entertainment, at leisure sports-related -- it's -- the bigger boxes, the [ unit close ], [ Primarks ] of the world, Zara it is -- it is -- this is where I give a shout out to Rick because he used to go through it. But we're seeing it [ Abercrombie ] we're doing a lot of new opportunities with Mango, Golden Goose, just to name a few Net Well, JD Sports, [ allow ], Lululemons growing with us, upsizing a lot of properties -- [ Our House ] is a great company that we're doing business with [ Pinstripes ], number of restaurants, restaurant tours, it's very, very, very encouraging because it's so diverse.

[Hong Zhang, analyst]

Got it. If I could sneak 1 other question. And I guess the $745 square foot sales, is that portfolio weighted or NOI weighted?

[David Simon, executive]

Portfolio weighted I'm sorry, just portfolio, pure, if it was NOI weighted, we used to do that. It's like [ 950 ] or higher.

[Brian McDade, executive]

950 plus or minus.

[David Simon, executive]

Okay. [ 950 ] thereabouts.

[Operator]

Our next question comes from the line of Greg McGinniss with Scotiabank.

[Greg McGinniss, analyst]

David, just on looking at the volatility of the retail investments, what are the drivers to keep SPARC and JCPenney on balance sheet as opposed to the ABG investments? And would you look to sell those in the near future?

[David Simon, executive]

Well, again, they're equity accounted. So they're really not on our balance sheet just to make us clearer. So they're investments in them. Listen, they are -- we built a company where everything is core and nothing is core. So 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 JCPenney, SPARC, XYZ mall. Call [indiscernible] David and not most people don't hit my bet, but the only thing that's core is the company and its people and its balance sheet, but every other assets for sale at the right price.

So nothing is critical long term. And again, look, guys, we're talking about volatility and the reality is the volatility has been mostly on the upside. And again, we're company that earns $12 and we're talking about $0.10 or here or there. So I just want to put everything more or less in perspective. But the there's nothing that I wouldn't sell at the right price across the company and worldwide period end of story. Because and it's very simple. You know why? I think because if we got the cash, I know we would find an appropriate investment that would replace the earnings lost. It's really that simple or we give it to the shareholders or we buy our stock back. So I am -- I am at the point of the highest level of indifference about monetizing an asset as you'll see.

[Operator]

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, executive]

Okay. Thank you. Sorry. We I know it's the end of earnings season, 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]

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