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Simon Property Group (SPG) Q1 2024 Earnings Call Transcript


SPG earnings call for the period ending March 31, 2024.

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Simon Property Group (SPG 1.06%)
Q1 2024 Earnings Call
May 06, 2024, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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. [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.

Tom WardSenior Vice President, 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 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 one hour.

For those who would like to participate in the question-and-answer session, we ask you to please respect the request to limit yourself to one question. I’m pleased to introduce David Simon.

David SimonChairman, President, and Chief Executive Officer

Well, 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 ’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 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 31st, and the charges were part of the 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 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 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 Penney 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 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 Center. We are opening Tulsa Premium Outlets this summer. Leasing is 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 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 28th. 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 of our full-year guidance of 2024 in the guidance range of $11.85 to — 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 macroenvironment. Occupancy is increasing.

Property NOI is growing. We made a significant profit on our ABG investment, and everything’s kind of moving on all the right directions. Thank you. We’re ready for questions.

Questions & Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Caitlin BurrowsGoldman Sachs — Analyst

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 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 SimonChairman, President, and Chief Executive Officer

Well, no one likes earnings volatility unless it’s volatility in the right direction, OK? 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 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 it — we expect it 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 is a great brand, and we can add value to it. And given the fact that we were able to hopefully turn around the retailer, save jobs, create value from our investment, we see it as a win-win situation with no capital from our standpoint.

Caitlin BurrowsGoldman Sachs — Analyst

Great. Thanks for that.

David SimonChairman, President, and Chief Executive Officer

Thank you.

Operator

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

Lizzy DoykanBank of America Merrill Lynch — 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 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. Thanks.

David SimonChairman, President, and Chief Executive Officer

Sure. We feel very bullish on our portfolio in general, and 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 for a certain currency does have an effect, kind of an inhibitor effect. But even with that said, domestic tourism continues to excel, and I think people, at the end of the day, 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 malls made a big comeback. Physical stores are 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 the lower-income consumers are 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 their cost of living goes down, so we can see more discretionary income there. The higher-income consumer continues to spend and visit our properties, and it’s good. A good example of that is our traffic for the first quarter, I think, was up around 2% for the year. Right, guys?

Unknown speaker

Yes.

David SimonChairman, President, and Chief Executive Officer

So, that’s also a very good sign. OK.

Operator

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

Samir KhanalEvercore ISI — Analyst

Good afternoon, everyone. David or 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? Thanks.

David SimonChairman, President, and Chief Executive Officer

Yeah. 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 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.

Samir KhanalEvercore ISI — Analyst

Thank you, David.

David SimonChairman, President, and Chief Executive Officer

Thank you.

Operator

And our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Ronald KamdemMorgan Stanley — Analyst

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 going to be peers looking to sell assets. Are there opportunities and appetite to go on offense on sort of buying more assets? Thanks.

David SimonChairman, President, and Chief Executive Officer

Sure. I think we’ve seen rates more or less stabilized now. There was volatility prior to that where it was hard to predict. Now, we’re not anticipating a reduction in rates, but at least we feel like 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 two- to three-year process, you’re talking about bringing on product in two to three years, not going to 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 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 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 at a fair price and assets where we think our expertise can add cash flow growth to them.

Ronald KamdemMorgan Stanley — Analyst

Thank you.

David SimonChairman, President, and Chief Executive Officer

Thank you.

Operator

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

Michael GoldsmithUBS — Analyst

Good evening. Thanks a lot for taking my question. 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’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 SimonChairman, President, and Chief Executive Officer

Sure. Look, we are — make no mistake about it. We are not immune to 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 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 to you, we have $11 billion of liquidity in our comments earlier. So, I think when and if — 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’ve 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 we’ll 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.

Michael GoldsmithUBS — Analyst

Thank you very much.

David SimonChairman, President, and Chief Executive Officer

Thank you.

Operator

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

Alexander GoldfarbPiper Sandler — Analyst

Hey, good afternoon out there. 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 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 ton, 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? 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 SimonChairman, President, and Chief Executive Officer

Yeah. That’s a — 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, 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 of — and again, 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, 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 — as a shareholder, we only would get tax distribution. It’s subchapter S, 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 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, we look at every aspect of it, pre-tax, after tax. What does it mean to the portfolio? We don’t want volatility, but 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, really does not make it the story. It is on the margin, and it will always be on the margin. 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 one 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 Jakarta. We’re building in Tulsa. We’re building apartments in Seattle.

I mean, I’m waxing a little bit here, we think of ourselves broader than I think the market thinks of us. That’s a comment upon us, and I think our disclosures have gotten better over time, I hope you agree, Alex, on OPI. So, you can see it not detract 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.

Alexander GoldfarbPiper Sandler — 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. So, thank you for the answer.

David SimonChairman, President, and Chief Executive Officer

Thank you, Alex.

Operator

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

Nick JosephCiti — Analyst

Thanks. It’s Nick Joseph here with Craig. David, I just wanted to ask on kind of the opportunity 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.

What kind of demand do you think that will drive from some of these higher-income clientele that you’re seeking?

David SimonChairman, President, and Chief Executive Officer

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 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 those 20 to 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. So, I think what happens at Sawgrass with the Oasis and the Colonnade and what already happens at Woodbury, but we’re just stepping up our game, will happen at Houston and King of Prussia. And if you saw what we did at Phipps in Atlanta and what’s going on at Boca Raton in Florida, just to name a few that jump out at me, is really a high priority for the company.

Operator

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

Floris Van DijkumCompass Point Research and Trading — Analyst

Hey, thanks. David, I was going to ask you about luxury, but I was picked. So, instead, I’m going to ask you about capital recycling. Presumably, your guidance, I mean, you just — you cleared 1.2 billion on the ABG sale, sitting there in cash, and obviously, you do have some ongoing developments, but those are essentially funded from your retained cash flow, if you will.

So, the guidance assumes — does that cash sit 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 SimonChairman, President, and Chief Executive Officer

Yes, very good question. We cleared in two months 1.450 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 or pays down debt, but that’s basically it.

So, no real redeployment is contemplated in our numbers at this point. Brian, if you want to add anything?

Brian McDadeChief Financial Officer

Yeah. 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 are carrying cash from our activities — our capital markets activities last year.

So, the combination of it will address our upcoming maturities.

Floris Van DijkumCompass Point Research and Trading — Analyst

Thanks.

David SimonChairman, President, and Chief Executive Officer

Thank you.

Operator

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

Vince TiboneGreen Street Advisors — Analyst

Hi. Good evening. 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 have not been great? So, just curious how long you think the current store count and fleet is sustainable.

David SimonChairman, President, and Chief Executive Officer

Yeah. The charges pre-tax were $33 million, so it’s kind of funny because 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 personnel and inventory.

So, that were the two primary factors and more, really, on the inventory side because we had some clearance inventory in SPARC. It was really focused on F21 and Penney, just on basically clearing out some inventory. So, Penney, we’re pleased with Penney. I’ll just talk a moment about the store closings.

They’re very interesting. Penney is able to produce positive EBITDA even if there’s not high sales. I think they do 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 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. Penney’s not public.

So, you know what matters to me, Vince? Cash flow, EBITDA, and obviously, 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 hard to achieve. Maybe you can achieve it.

It’s my history, not overly long but long enough. I don’t care what industry. It’s very hard to do. Some have done it, 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 if you can create cash flow, it 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, I don’t anticipate — long story short, I really don’t anticipate much portfolio real estate activity at the JCP level.

Vince TiboneGreen Street Advisors — Analyst

No, that’s really helpful color. Maybe if I just ask 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 split ownership with Brookfield?

David SimonChairman, President, and Chief Executive Officer

Well, look, I think as part of the deal originally, first of all, our relationship with Brookfield is excellent. And we’re both basically an ABG’s — 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, both of us got the opportunity to reclaim certain space from JCPenney that we could redevelop. 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 going to ultimately redevelop a JCPenney at one of our centers. 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, and we get the — 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 going to have to find them some new opportunities to make up for it. But that’s all part of it, 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, and again, that was all pre-negotiated. To the extent that there’s one that wasn’t part of that negotiation, that’s, 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.

Vince TiboneGreen Street Advisors — Analyst

No, thank you. All great color.

David SimonChairman, President, and Chief Executive Officer

Thank you.

Operator

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

Juan SanabriaBMO Capital Markets — Analyst

Hi. Good afternoon. 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, stripping out two tenants. Just curious on the color of why those two tenants were stripped out, if there’s any interesting —

David SimonChairman, President, and Chief Executive Officer

Yeah. Let me answer that. I think the two 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 their sales with internet returns. So, it’s just information, OK? 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, because not all those are comp, total was up 2.3%, which is the more important number. Now, we also — and Brian can add in here. Now that I’m talking, I might as well just finish. We don’t — as part of our discussion, 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, in our comp NOI, we have our bad debt expense. I think I gave you some color.

We still feel like it’s achievable. But again, I don’t think — and Brian can add. We’re not going to really give you a 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.

Juan SanabriaBMO Capital Markets — Analyst

Thank you.

David SimonChairman, President, and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.

Haendel St. JusteMizuho Securities — Analyst

Hey, good evening. Thanks for taking the question. A quick two-parter here. First, I wanted to follow up on Floris’ question on the uses for the cash from the retail monetization.

The stock’s $35 or so higher than what you lost back. So, I assume it’s 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 SimonChairman, President, and Chief Executive Officer

Brian, I hope you can answer all these. I expect you to.

Brian McDadeChief Financial Officer

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 SimonChairman, President, and Chief Executive Officer

Tell them the two.

Brian McDadeChief Financial Officer

Fair Oaks and Country Club are the two assets that the partner is buying us out or bought us out. With respect to capital on the balance sheet, certainly, it’s capital allocation decision relative to stock buyback. But 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 SimonChairman, President, and Chief Executive Officer

Yeah. And I would just add to that the ABG sale happened — I don’t remember exactly, but near quarter-end, and we were blacked out from that because of Q1 earnings. So, I wouldn’t read — the fact that it’s sitting on the balance sheet, read too much into that.

Haendel St. JusteMizuho Securities — Analyst

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

Brian McDadeChief Financial Officer

There is no required special dividend. This interest was owned in our taxable REIT subsidiaries. So, there will be a tax actual payment due, not actually a special dividend.

Haendel St. JusteMizuho Securities — Analyst

Got it. Got it. Thank you.

Operator

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

Linda TsaiJefferies — Analyst

Hi. Thanks for taking my question, a two-parter. 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 SimonChairman, President, and Chief Executive Officer

Well, I think obviously, there is a couple of elements. The first, the most important one is that 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 others may not agree with me, there’s a certain expertise in doing that, and we have it. 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 two 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.

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 what we’d like to do, maybe short-term leases, so on and so forth. But we’re not alone in that.

Any other landlord will have to come to their own conclusion on what they want to do if part of rent adjustment is necessary to get the brand on solid financial footing.

Linda TsaiJefferies — 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 SimonChairman, President, and Chief Executive Officer

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.

Linda TsaiJefferies — Analyst

Thank you.

David SimonChairman, President, and Chief Executive Officer

Sure.

Operator

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

Unknown speaker

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

David SimonChairman, President, and Chief Executive Officer

Honestly, it’s across the board, restaurants, entertainment, athleisure, sports-related. It’s the bigger boxes, the Uniqlos, Primarks of the world, Zara. 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.

NetWell, JD Sports, Allo. Lululemon’s growing with us, upsizing a lot of properties. Our House is a great company that we’re doing business with, Pinstripes, a number of restaurants, restaurant tours. It’s very, very, very encouraging because it’s so diverse.

Unknown speaker

If I could sneak one other question in. I guess the $745 square foot sales, is that portfolio-weighted or NOI-weighted?

David SimonChairman, President, and Chief Executive Officer

Portfolio weighted. I’m sorry, just portfolio pure. If it was NOI-weighted, we used to do that, it’s like 950. Higher?

Brian McDadeChief Financial Officer

950, plus or minus.

David SimonChairman, President, and Chief Executive Officer

OK, 950, thereabouts.

Unknown speaker

Perfect. Thanks.

David SimonChairman, President, and Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.

Greg McGinnisScotiabank — Analyst

Hey, David. Good afternoon. Just 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 investment? And would you look to sell those in the near future?

David SimonChairman, President, and Chief Executive Officer

Well, again, they’re equity accounted, so they’re really not on our balance sheet, 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, 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 Uncle David, and most people don’t hit my bid, but the only thing that’s core is the company and its people and its balance sheet, but every other asset is 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 a company that earns $12, and we’re talking about $0.10 here or there. 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. And it’s very simple.

You know why? 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’d give it to the shareholders, or we buy our stock back. I am at the point of the highest level of indifference about monetizing an asset, as you’ll see.

Greg McGinnisScotiabank — Analyst

Great. Thanks for the color.

David SimonChairman, President, and Chief Executive Officer

Sure.

Operator

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 SimonChairman, President, and Chief Executive Officer

OK. 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 tied it to our annual meeting on Wednesday.

But thank you for your interest and your questions. Very good questions. Appreciate it. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Tom WardSenior Vice President, Investor Relations

David SimonChairman, President, and Chief Executive Officer

Caitlin BurrowsGoldman Sachs — Analyst

Lizzy DoykanBank of America Merrill Lynch — Analyst

Unknown speaker

Samir KhanalEvercore ISI — Analyst

Ronald KamdemMorgan Stanley — Analyst

Michael GoldsmithUBS — Analyst

Alexander GoldfarbPiper Sandler — Analyst

Nick JosephCiti — Analyst

Floris Van DijkumCompass Point Research and Trading — Analyst

Brian McDadeChief Financial Officer

Vince TiboneGreen Street Advisors — Analyst

Juan SanabriaBMO Capital Markets — Analyst

Haendel St. JusteMizuho Securities — Analyst

Linda TsaiJefferies — Analyst

Greg McGinnisScotiabank — Analyst

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