Simon Property Group, Inc. (SPG) Earnings Call Transcript & Summary

I'll go ahead and get started here. Thank you for joining us. Very happy to have Simon Property Group here. Welcome to the roundtable with the company. Happy to have Eli Simon here, who's the COO of the company; and Brian McDade, CFO. So Eli, maybe to start off with you, maybe I'll turn it over to you with some opening remarks that you can provide. When I look across the room here, there are people here who aren't familiar with Simon Property Group and from a journalist perspective. So maybe talk a little bit about the company.

Yes. Sure. Thank you, Samir, and it's great to be here with everyone today. So quickly overview of Simon Property Group. So we have been a public company since 1993. We're a member of the S&P 100, and we're the largest owner of retail real estate globally. Our business today, we have interest in over 250 properties, 212 domestic, 42 internationally. About 90% of our NOI is from our domestic portfolio, which spans 37 states and the remaining 10% from our international portfolio, which is primarily in Europe and Asia, but also includes Canada and Mexico. Our U.S. business, our domestic business, spans the spectrum from full-price malls to the value-oriented centers in our premium outlets in our mills portfolio. We generate over $4.5 billion in funds from operation annually and pay over $3 billion in dividends each year and today have a dividend yield of about 4.5%. As a public company, we paid over $47 billion in dividends to date. We take a very long-term view of our business, very focused on disciplined investments and operational excellence in order to increase cash flow growth, funds from operation and our dividend while continuously improving our properties and our portfolio as well as the company overall. This long-term view and this focused approach has allowed us to generate industry-leading returns, and we've generated over 4,300% total shareholder return since we went public in 1993. So I guess, Brian, I'll turn it over to you for a little bit more about the most previous quarter.

Thank you, and good afternoon, everybody. Good to be with you today. About 30 days ago now in August, we reported second quarter real estate FFO of about $3.05 per share. Our Q2 results were driven by strong fundamental performance, including occupancy gains, increasing shopper traffic and higher retail sales volumes. Our domestic property NOI grew 4.2% in the quarter and has grown 3.8% for the first half of the year. Our portfolio NOI, which includes our international investments at a constant currency, grew 4.7% for the quarter and 4.2% for the first half of the year. Occupancy in our Malls and our Premium Outlets was 96% at the end of June, and our reported retailer sales per square foot was $736 on a trailing 12-month basis ending June 30. We continue to see robust opportunities to deploy our significant free cash flow. Work continues on major redevelopment and expansion projects across the globe. Importantly, we opened a new Premium Outlets in Jakarta, Indonesia earlier this year. We are the one company or one of the companies in the world that can build in Jakarta and domestically all at the same time. This is a key strategic advantage of our growth. Our balance sheet continues to be a differentiator for us and it's one of the strongest in the industry, if not the strongest, providing unmatched operating and financial flexibility to fund our business. This positions us with free cash flow and allows us to create long-term shareholder value by reinvesting in our assets at an accretive yield. We are bullish about what we've done so far this year and what's coming on the balance of the year and heading into next year. So we are well positioned to continue as a company, very comfortable with where we sit, and we are building momentum throughout the year. So with that, we can certainly open it up to questions, both from the BofA team, but obviously, everybody in the room, feel free to ask questions along the way.

Thank you, Brian, for that. Eli, just maybe starting off with you. You certainly were promoted to the COO role recently from the CIO role. As CIO, you worked on the Taubman acquisition, also the luxury outlet transactions earlier in the year. How has that transition been in terms of moving to the COO role? And I know it's only been a month here, but kind of talk to us about kind of the areas you're focused in? Let's call it, the next 3 to 6 months.

Sure. So I would say the promotion, I guess, right, I don't know what it was a few months ago or so. I'm doing what I've been doing, frankly, for a decent bit of time now. So I'd say today, I'd probably split half my time, I'd say on capital allocation. So whether that's new investments, new developments, redevelopments, our mixed-use portfolio, renovations, larger tenant capital situations. And the other half of the business or other half of my time really on our operations with a particular focus on, I'll say, is our media at large business. So that includes our marketing team, our innovation team, our data analytics team, our Simon Brand Ventures team, which is where we monetize our footfall throughout our domestic centers. And so in those -- in that bucket, I would say, the thing that we're most focused on over the next really shorter than 3 months in the next couple of weeks, is really launching our loyalty program. So we're in beta right now on Simon+, which is we think is going to be the industry standard for an omnichannel or omni approach to a loyalty program to allow customers to earn points in-store and online on our marketplace shopsimon.com and then be able to burn those points either online or in-store, which we think is going to be a real differentiator from a retailer perspective to want to sign up, want to have their products and some of their awards on our loyalty program. We're continuing to invest in our data business and our digital business. We have Simon Search which allows you to search real-time inventory from your home to know what's in store today. And the next step in that evolution is to link fulfillment from that. So now that you can go -- be at home, see that, that black dress you want is in store and have the ability to either order it or go to the mall and know it's going to be at the store and pick it up. And so we're continuously investing in that. I have a lot of really innovative ideas and that's going to roll out over the next several months and into next year.

That's great. And just maybe taking a step back here, maybe about the macro and the consumer. A lot of questions about the consumer. Will they continue to spend given, sort of, the tariffs and the spending pressures? Talk to us kind of what you're seeing across the 3 platforms. Are you seeing any differences in spending by the consumer or retailer demand for space at this time?

So on the consumer front, the consumer remains very resilient. Back-to-school is very strong. I live in New York, so I have a little New York bias. But in Indiana and the Midwest, back-to-school starts in July. And if you look at the results that we've seen both in terms of retailer sales and traffic in July in sort of what I call the mainstream centers like a Woodfield in Chicago or Greenwood, Castleton, very strong results, which is really encouraging. And so we see continued strong retailer demand that's unabated. It's across all our platforms. People know that physical retail is where the consumer wants to be and that our properties are excellent locations for them to continue to open stores. In the consumer side, I think as we said on our last earnings call, not hitting at all cylinders with really kind of the one exception being our border properties. So we have fantastic properties, both Malls on the Premium Outlet side, on the Canadian border and on the southern border that have been historically our best assets or some of our best assets in terms of traffic growth and sales growth, which has obviously pulled back a little, but still long-term great assets. And then a couple of the international markets -- international tourism markets have been a touch softer. But even if you look at Vegas, that was in July was down 12%. Our sales were actually up a little bit. So not the normal incredibly robust sales growth from that market, but still definitely getting more than our fair share overall, which is an encouraging sign so far.

By the way, I want to keep this interactive. So if there's any questions, just...

Just to confirm. Say, that's across all 3 platforms, what about regions, and then within the mall or even outlets like between your most dominant to, let's say, least dominant. Any differences to...

Yes. I'd say, regionally, again, besides the border, right, Southern California, Arizona, so maybe not just on the border, but as you go a little bit further north in those 2 states, a little bit softer. But otherwise, again, the middle markets, the middle centers, very, very strong. And the malls definitely outperformed, the outlets in the mills in the last little bit. But if you kind of normalize the outlet, just happened to be more weighted towards some of the international tourism. And so if you normalize that out, it's much closer. But really resilient consumer across the board and a good back-to-school is what we're hearing kind of across the board.

And I mean on the consumer, if you think about the business, we over-index to the higher-end consumer and that higher-end consumer is really driven by asset values, the exposure to the stock market, what's happening there. That drives their purchasing decisions, and we're still seeing really good uptake from the higher in consumer in the business -- in our business.

It seems as if [indiscernible] the capital allocation [indiscernible] international markets [indiscernible] is that something we should expect?

I think the answer is yes, and I'll have Eli opine upon this. But we've been an international business for a long time. As you look at opportunities to acquire high-quality retail assets whether that's domestically or abroad, it's going to be an area of focus for us. So right now, it's more about the opportunity set. Jakarta was ground-up development versus the acquisition of the 2 assets in Italy. So a little bit different there. I would expect us absolutely to continue to invest in ground up development in the outlet space globally. And I would expect us to continue to evaluate opportunities to add high-quality retail real estate from an acquisition perspective.

Yes, I think that's right. I think sort of the law of large numbers, right, we're a 90-10 today, it's going to be hard to move that materially that 10% international and materially above that. But as Brian said, we're always evaluating opportunities and we look at what's the best risk-adjusted return. And it's not a, we're only going to do international, we're only going to do domestic, we're only going to buy, we're only going to develop or redevelop. We can do all when we think is good risk-adjusted returns, then we'll do it.

How much outlet opportunity is there in the U.S. right now domestically, you think?

For new development?

Yes.

I would say -- funny, we had a capital committee meeting 2 weeks ago. And there were a couple of opportunities presented early stages that we were evaluating. I would say one was more interesting than another. So it's onesies and twosies. There's not a lot, we had announced or have announced right in Nashville. I'd say more to come, but that site might almost be too good for an outlet based on the retailer demand we're hearing. And so we'll still continue to evaluate opportunities. We have a team that looks at it, both here, Canada and Mexico, throughout Asia, Southeast Asia and Europe. So we'll continue to evaluate, but it's not a tremendous number of markets that really are lacking today.

I know, Brian, you talked about the leasing environment being robust. It's strong. Had you -- I mean, talk to us kind of -- I know you guys are all focused on deal review meetings that you said on. Like, talk to us kind of how is that conversation in these deal review meetings? And how much of sort of '26 expirations have you taken care of at this point or rather addressed?

Yes. We're about 25% through our expirations for next year which is ahead of where we would have been last year. I think that's a function of retailers' desires to continue to secure high-quality locations, which is really the driving force of our leasing environment. When we -- the ability for us to put together a high-quality real estate with our capital position really is a differentiator for us. And honestly, the retail backdrop and the leasing environment is as robust and unabated as it's been in the last 18 to 24 months. Retailers are still looking to secure the very best locations. There's nothing new being built that we just discussed. And if anything, supplies leaving the system, given creative destruction, assets that are over-levered or finally being foreclosed upon and being revitalized into other things, but that's taking supply out of the market. So retailers as they're looking to grow their business in the U.S. have a shrinking pool of opportunities. And so they're looking to secure those opportunities over long periods of time. And so our leasing environment is as good as it's been in a really long time. That's a function of the quality of our assets and the ability to put capital back into them. And it's broad-based across a variety of categories of retailers from food and beverage and entertainment uses, which are really proliferating at our mall assets and our full-price assets, to the athleisure categories, which you continue to see expansion with new entrants into that category. So 10 years ago, it was lululemon, now there's an incredibly deep roster of high-quality companies that are looking to access our type of space. So the environment is robust as it's been. And thankfully, we're in a position to meet that demand kind of where it is.

So even if sort of you hear about luxury pulling back in terms of demand for space, you have all these other categories sort of pretty active, right? Is that...

Absolutely. And I would say that candidly, luxury isn't materially pulling back at least that we're not experiencing that. Certainly, they've had more volatilities in their sales. And there's certainly individual brands that are going through their own respective challenges. But as a whole, I think the luxury category continues to grow and is looking to secure space in our assets over long-term periods of time.

Just a question on your initiative with Simon+ and Simon Search. So the Simon+ is aimed [indiscernible]. Can you talk a bit more about what that investment is from the retailer's perspective. [indiscernible] are you seeing that translate into higher retail sales? Can you quantify?

Sure. So I guess first Simon+ is a week or 2 in beta. So we haven't really seen results, but I would say what is interesting from the retailer's perspective is today, speaking as a landlord of Simon, we know that somebody went to Apple and somebody went to Abercrombie, but we don't know if you went to Apple and then Abercrombie. And so now we're going to be able to know that you went to this store and you went to that store, and that's real data and real analytics that we're going to be able to share with our retailers to help get them excited to help them improve their sales as well. And so from our perspective, our focus is really on marketing, on getting the customer acquisition in the loyalty program, which we're really launching kind of on center literally in the next week or 2. And then from a retailer's perspective, it's what exciting rewards can you have on our platform. And so there's a lot of opportunity there, whether it's spend $100 get 10% off, but it could be a bag tag. It can be a free pretzel, right? There's a lot of opportunities to engage with our customer. And we're hoping that this is a really robust ecosystem where retailers will want to put their best foot forward because they know that we have a qualified customer, right? When somebody comes to the mall and they're buying, they know that they're going to come back to that mall and they're going to buy it again. And so we think that's a pretty compelling story. And we have, I don't only, [indiscernible], but 500-some-odd rewards already, and we're in beta. And so once retailers see and once customers go and say, well, why don't you have a reward on Simon+ XYZ retailer, we think there's going to be more and more of that sign up as we really go live. On Simon Search, it's been really interesting. We get 10 million to 12 million searches a month on there. And from a retailer's perspective, it's -- we think, again, it's hard to quantify, but we think it generates incremental business because if I know that, that black dress is there in store, in my size, and I don't have time to order it online or sold out online, I'm going to go, right? And so we think that's pretty interesting. From our perspective, we get very interesting insight from that. So if you look this was in February, and I was kind of looking at the top searches and the 3 top searches on Simon Search were dresses. Okay, Pretty generic phrase. Jeans, also generic. And Labubus, right? And so -- this was as before, right, the Labubu craze was taking over and now we have 30-some-odd deals that we're working on with pop mart. And so we actually are generating real insights from this, understanding what our customers are searching for. And we think that overall helps our retailers because it gets repeat visits and it's better for our consumer.

Investment is by marginal [indiscernible].

Yes. I mean, yes, very, very marginal.

[indiscernible] How do they provide that [indiscernible]?

So we -- so it's a pretty easy API that it takes a couple of weeks, and we get their live feed, and we have, I don't know, upwards of 100 retailers today. And there's nobody else that has that. So if you're a retailer and if you're considering 2 locations, the access to Simon+, the access to the Simon Search, not to mention we have the balance sheet to put money into our centers, continue to reinvest in our centers, make sure that they have the best newest food and beverage offerings, the most innovative retailers that's a competitive advantage that we use when we go and try to get tenants to come into our centers.

It allows us to drive performance of those tenants at the end of the day, right? And it allows us visibility to the pop mart was a great example where we -- because of our infrastructure, our digital infrastructure now, we identified a trend within the -- from the consumer level and we can meet that from a leasing perspective by working with the retailer to kind of open up to stores. So really, we're getting it from a variety of perspectives, and it's really giving us a new aperture on how we can run the business.

Is it already [indiscernible] growth?

So our current database is around $20 million on the -- what I'd call the old, the original and which, for lack of a better word, was a glorified coupon book, right? And so now it's -- we're hoping to have a real significant number and have tons of commerce flowing through there. And obviously, as that happens, we're just going to learn more and have more opportunities to serve our customers better.

[indiscernible] with the level of data you have or you need more scale in dominant centers?

Yes. I mean again, it's been a week or 2, right? So -- but yes, I think in the last July. So I guess, a little over a year ago, we kind of saw the road map of Simon+, we actually really decided we're going to really invest in the data. So we hired our first true data analytics person to run that group and kind of starting to build that out, knowing that Simon+ was on the road map into '25 and into '26. So it's something that we think is going to be pretty significant for us and for our retailers in the coming years.

So just getting started. We built the infrastructure for it. And so now as we collect the data, we're going to be able to capture that, Jeff. So yes, data is the new currency in the world that we live in and everybody is looking to monetize it or you have more of it. I think we've built out the digital infrastructure to support the business going forward.

Brian, just turning to maybe operations. I mean, you've done a good job on the occupancy front, right? I mean it feels like a lot of demand there. Help us understand in terms of occupancy, how to think about that maybe across your platforms over the next 12 to 18 months, how much room there is to push here?

Sure. Look, I think if you look at the mall and premium outlet business, roughly 96% last quarter. The previous high was 97%, which was a 2014 number. It's going to take a little bit, but we think the facts on the ground would lead to that there is the potential to exceed our all-time high, certainly in the outlets in the mall business. When you pivot to mills, mills was 99% occupied, effectively fully occupied. So that portfolio has done incredibly well. And -- lastly is the Taubman portfolio, which was roughly 93%, which was down a touch, they were replacing some Forever 21 stores. So we would expect that to snap back closer to 95% by the end of the year. So there is opportunity to drive occupancy. You've also heard us talk about the merchandising mix, which is important, which is really taking lower productive tenants and replacing them with higher productive tenants in the world we're living in today. And so we may churn some occupancy. So you may not see big increases in occupancy, but we're doing so with better productive tenants that ultimately, over time, will be more economically viable for us.

Right. And it feels like we're in a great environment here for the mall business, right, in terms of activity and leasing that we're seeing. I mean, this year, you had Forever 21, Claire's. I mean, what do we -- how do you think about sort of that watch list in the next year? Is there anything that...

So those were certainly the 2 that we're on at the beginning of the year. We've not added throughout the year, which is relative to the kind of the fundamentals that we're seeing in the business. Traditionally, look holiday season is the make or break. And so we traditionally rerank our tenants, call it February after you have final results for the year and the holiday season. But as of where we sit today, we don't see any new risks emerging in a meaningful way. I actually think that the Forever 21 and the Claire's situation is really fundamentally, we absorbed 1.8 million square feet of bankruptcy from those 2 entities in the second quarter and still increased occupancy 10 basis points. So I mean, that dynamic on the ground is probably underappreciated in that respect.

And increase rent significantly.

Right. And how is -- I'm not sure how much data you have sort of back-to-school and I mean holiday, like how are you thinking about inventories into the holiday season? And what are you hearing from retailers?

So far, as Eli said, the back-to-school holiday season, depending on where you are geographically starts in July and kind of ends in September. In those early return states, if you would, the Midwest, Indiana we have seen outperformance from back-to-school, both in sales and in traffic. And if you listen to some of the retailers that have reported in here in the last couple of weeks, I think they're reporting something similar. The consumer is engaged the consumer is buying. It may be more discerning than it has been in the past, but they are still spending. Certainly, event-based things. So back-to-school holiday is an important part. And then the upper end consumer continues to spend given the value of their assets continues to go higher.

On the inventory front, we're not hearing anything. Retailers are planning for a normalized inventory and for a good productive holiday season.

In terms of the balance sheet, talk to us kind of as we think -- again, as we think about next year, some of the maturities coming up and are you planning for those maturities given kind of the interest rate environment here?

So it's a great question. We were just active here in the last 3 weeks in the unsecured debt markets. We raised $1 billion at a blended rate of 4.7% between 5- and 10-year money. So the unsecured side is incredibly wide open. Spreads, quite honestly, are as tight as they've been. We issued an [ 89 ] over in our 10-year. The only other time we priced tighter was in [ '96 at 82 ] over. So spreads are incredibly tight on the unsecured perspective. But certainly, we're pricing off a much higher base rate than when we -- our existing debt is rolling from. So as you look at next year against that, we've got unsecured debt that's rolling in the context of 3.5%, and we just reprinted at 4.7%. So there is definitely interest rate headwinds. Last year, we talked about those being between $0.25 and $0.30 on the year. I would expect a similar order of magnitude for next year as you just kind of look at what's rolling in the rate differential. But the markets are certainly wide open. We have access on the unsecured side, certainly domestically, but also to the euro and the yen market. We've not issued in yen historically, but have in euro and would expect that we could access some of those markets certainly next year or balance of this year into next year with some of our maturities. And then on the secured side, it's kind of all over the place to some degree. The CMBS market is open, both the conduit and the SASB market, so bigger loans and the SASB are pricing incredibly well. Earlier this year, we refinanced Houston Galleria at a sub-50% LTV with a spread in the low 100s, and so that's got a 5.5% handle coupon on it. it was a 3.5%, right? So at the end of the day, interest rates are going higher, and we'll be a bit of a headwind. Again, next year relative to -- similar to what we saw this year is what I would say.

But maybe talk a little bit about external growth, right, given sort of the current cost of debt, I mean even sort of the transaction environment, I guess what -- talk about potential property acquisitions that potentially could look interesting. And maybe generally talk about what does that transaction market look like for A malls today?

Yes. So on the transaction market, we have, I think, a relatively simple philosophy when we evaluate where we're going to buy, okay? So first off, it has to be really good real estate that we think improves the franchise value. Two, is we think that there's going to be an ability for our operations teams, our leasing teams, et cetera, to improve it. And three is at the right price. A price that we think we can make money on the long run. We're not -- we don't have to buy to buy for buying stake. We're going to buy for compelling opportunities that meet those criteria. If you look at the 2 larger acquisitions that we did over the past 9 months, the 2 mall luxury outlets in Italy and Brickell, both met those criteria and very excited about those and both -- I guess, all 3 of those assets, they're growth prospects. So on the overall transaction environment, do I think there's going to be a flooding of Class A malls trading? Probably not. But if there are opportunities, we will evaluate and if they meet our criteria, we think we can make a good return on it, then we have the ability to be active. And if not, we have plenty to do with our existing portfolio. But we're going to keep on doing what we're doing with our existing portfolio. And if we see opportunities we'll be able to participate, but it's not a do one or the other, we're going to do both to the extent that the math and the returns make sense.

Are the return rationals [indiscernible] accretive year 1...

Yes. I mean I think generally speaking, yes, accretive year 1. And at the end of the day, we want to increase NAV over the long term. Obviously, on a development that's -- you're hoping that you're building to a spread outside of what the cap rate is, that's pretty -- that math is pretty easy. On an acquisition, either it's on the buy side, the purchase price is such that there's embedded NAV growth or as we think we can really improve cash flow, combined with the good purchase, get you the NAV growth. But that's really -- that's really how we think about it. I'd say if you look historically over 32 years as a public company, we've kind of bought or done transactions at 125 to 150 basis points. Outside of our 10-year cost of capital or 10-year debt financing costs, generally speaking, some higher, some lower. So that's somewhat of a rule of thumb. But really, it's asset-specific, deal specific, and it's got to make economic sense. We don't need scale just for scale's sake.

[indiscernible] in the last year or so, are you seeing more...

I would say you definitely have seen more activity on the strip center, quasi lifestyle center space, there's definitely been some activity we've looked at and participate in for a variety of reasons. In the sort of the more traditional Class A malls space, whether it's a willing seller or it's at a price that doesn't make sense, there clearly hasn't been as much robust activity in that space. But obviously, it takes 2 to tango for transactions to occur.

And I would just say that usually, you've seen a lot of smaller transactions, the stuff in the $100 million to $300 million kind of ZIP code of stuff. Usually, that's what builds into bigger things, right? You see some more activity, more clearing prices at those kind of assets and levels, which usually unlock opportunities kind of for the larger assets.

Talk a little bit more about the decision to invest again in your malls.

Yes. I think it goes -- it's a couple of things. One is our B malls are other people's A malls, right? So we don't view it that way, right? We view it as different malls have different places in different communities. And I think we've mentioned, right, the Smith Haven example, that's a dominant mall on the eastern part of Long Island. You can call it an A mall, B mall, you can call it whatever you want, but it's growing. That catchment area is growing, super good demographics, and we can invest incrementally at really attractive returns, adding top-tier retailers. And so when those situations line up, we're going to do it. you can look at Tacoma. Again, call it A mall, call it B mall, you call it a very good mall with a great location, and we're adding some restaurants outside that will open in a month or 2, because we thought it was really interesting risk-adjusted returns. It benefits the rest of the property, and we believe in that asset in the long term. So we don't look at A, B, C, whatever, we look at where can we invest and make money and have good returns.

And I think importantly, the driver of this investment is the tenant community, right? They want to be there. They wanted to be there. They wanted a store there. So we -- it unlocks the opportunity for us to invest. I mean this isn't a spec investment in our part. We're doing it with the demand in the marketplace. And so there is demand from those retailers for those B assets, if you would. We -- this is more of a pet peeve for me, but As and Bs and Cs. We grade those assets based upon relativeness to other assets, not relative to their markets. So a $450 foot asset may be the best market in that asset. It may be an A, but it looks different than shops at crystals in form. The relativeness I think, is lost in the gradient there. And so it is -- that is an important asset for us. The retail community was the driving force of our investment, and we were in the position to have the capital to invest which is also very important, right? The tenant community is coming to us because of our capital position to grow with us.

I mean you guys generated a lot of cash flow annually. Like when you think about that use of cash? I mean is that -- what are the priorities as you kind of rank them?

So just kind of level set, right? In a given year, we're going to generate after our dividend about $1.5 billion of cash flow. Certainly, the redeployment of that capital back into our assets is first and foremost priority, making them better. And so any given year, you're going to see $1 billion to $1.5 billion of committed development spend. Now their 24-month project. So half of that goes out the door in any given year from a cash perspective. So $1.5 billion of free cash flow, $750 million of it funds our redevelopment program, which are yielding roughly 9% unlevered yields. And so making our -- growing our dividend, returning capital to shareholders investing in our core business, but accretively. And then we have other opportunities, acquisitions, certainly, we can delever the balance sheet, if necessary, just given not facing higher interest rates. The balance sheet is in a great place. We're approaching 5x net debt to EBITDA and may actually crest over that by the end of the year given the EBITDA growth and no need to they seek external funding or capital to drive our business because we're using internally generated funds. And so as we rank order kind of capital priorities, it's -- again, it's an [ end ] conversation for us. It's not in [indiscernible]. We're not doing acquisitions or reinvesting in our business, we're doing both simultaneously.

Any questions? Okay. So I have to ask the rapid fire questions.

All right.

All right. So number one, when the Fed starts to cut rates, the short end how do you think the borrowing rates will react? Number one, decline stay flat or potentially rise?

I guess if the Fed cut and raise they, by definition, have to fall borrowing rates at least in the front end I think overall, though, long end rates will stay probably pretty anchored on where they are today.

The 10-year...

10 years probably anchored more on growth and inflation expectations versus what the Fed is traditionally doing or at least historically, that's how the economic model worked. So I would say kind of no change in long-term rates relative to what the Fed is doing.

Okay. Number two, majority of companies last year talked about ramping up spending on AI initiatives. So how would you characterize your plans over the next year higher, flat or lower?

From a spending perspective? We'll spend a little bit more next year than we did this year, for sure. We're kind of filling our way through it like so many organizations and industries are. But it's clear that there is opportunity by using AI to drive cost structure changes and/or greater productivity from our human capital assets.

Okay. Number three, same-store NOI growth next year. Higher, lower or same for the industry?

I would say higher.

Thank you very much.

Thank you.