Simon Property Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 5, 2024

There are 13 speakers on the call.

Operator

Greetings, and welcome to the Simon Property Group 4th Quarter and Full Year 2023 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ward, Senior Vice President, Investor Relations.

Operator

Thank you, Tom. You may begin.

Speaker 1

Thank you, Paul, and thank everyone for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive President and Brian McDade, Chief Financial Officer. A quick reminder that statements made during this call may be deemed forward looking statements to 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 these forward looking statements. Please note that this call includes information that may be accurate only as of today's date.

Speaker 1

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 ks 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. I'm pleased to introduce David Simon.

Speaker 2

Good evening. Thanks, Tom. Before turning to the results, I would like to provide some perspective On our company, as we celebrated our 30th anniversary as a public company May December of last year, we have grown our company into a global leader of premier shopping, dining, entertainment and mixed use destinations, managing through and in some cases, very turbulent times. Over the last 3 decades, from our base of 115 properties in 1993, We have acquired approximately 300 properties, developed more than 50 and disposed of approximately 250, resulting in our current domestic portfolio about of 2 15 assets. We expanded globally and today have 35 international outlets, including world renowned outlets in Asia.

Speaker 2

And our portfolio is differentiated by product type, geography, enclosed and open air centers located in large and dense catchment areas. Our portfolio is supported by the industry's Strongest balance sheet and a top management team. We are the largest landlords, the world's most important retailers and not by accident. Our diversified tenant base has solid credit and our mix is always changing and adapting, Best illustrated by the fact that compared to 30 years ago, only one retailer is still in our current top ten Our team's hard work has resulted in industry leading results, Including some of the following, our annual revenue increased from $424,000,000 to nearly $5,700,000,000 annual FFO generate Our annual FFO generation increased 30 times from approximately $150,000,000 to nearly $4,700,000,000 a 12% CAGR. Total market capitalization has increased from $3,000,000,000 to 90 We have paid over $42,000,000,000 in dividends to shareholders.

Speaker 2

We have assets in our portfolio that have been in business for more than 60 years. Those assets are still growing today With many generating $100,000,000 in NOI, these assets are in great locations, have a loyal and large customer base and are where the retailers want to be. No other asset type has the longevity, including the NOI generation and embedded future growth that these assets have, yes, they change, Yes, they evolve. Yes, they adapt, but yes, they also grow. Our collection of assets cannot be replicated, And there are hidden always hidden opportunities within them.

Speaker 2

I want to thank the entire Simon team You have contributed to 30 years of success as a public company. And now let me turn to our 4th quarter 23 results, we generated approximately $4,700,000,000 in funds from operation in 2023 or 12 point $9,000,000,000 to shareholders in dividends and share report repurchases. For the quarter, FFO was 1 point $38,000,000,000 or $3.69 per share compared to 1 point 2 $7,000,000,000 or $3.40 per share. Let me walk you through some of the highlights for this quarter compared to Q4 Of 2022, domestic operations had a terrific performance this quarter and contributed $0.28 of growth, primarily driven by higher rental income with lower operating expenses. Gains from investment Activity in the Q4 were approximately $0.07 higher in a year over year comparison.

Speaker 2

Other platform investments had $0.03 lower contribution compared to last year. FFO from our real estate business was $3.23 per share in the 4th quarter compared to $2.97 from last year. That's 8.7% growth and $11.78 per share for 2023 Compared to $11.39 last year, domestic property NOI increased 7.3% year over year for the quarter and 4.8% for the year, continued leasing momentum, Resilient consumer spending operational excellence delivered results For the year exceeding our initial expectations, our NOI ended the year higher than 2019 Pre pandemic levels. Portfolio NOI, which includes our international properties at constant currency, grew 7 0.2% for the quarter and 4.9% for the year. Ball and outlet occupancy at the the quarter, Q4 was 95.8 percent, an increase of 90 basis points compared to last year.

Speaker 2

The mill's occupancy was 97.8. Occupancy is above year end 2019 levels for all of our platforms. Average base minimum rent for malls and outlet increased 3.1% year over year and the mills rents increased 4.3%. We signed more than 9.60 leases for approximately 3,400,000 Square Feet in the 4th quarter. For the year, we signed over 4,500 leases, representing more than 18,000,000 square feet, Approximately 30% of our leasing activity for the year were new deals with going in rents of $74 per square foot and renewals had going in rents of approximately $65 Per Square Foot Leasing momentum for the last couple of years continues into 2024.

Speaker 2

Reported retailer sales per square foot in the quarter was $7.43 for malls and outlets Combined and $677,000,000 for the mills, during the quarter, we sold a portion of our interest in ABG For gross proceeds of $300,000,000 in cash and reported pretax and after tax gains of $157,000,000 $118,000,000 respectively. We opened our 11th outlet in Europe last year. Construction continues on 2 outlets, yes, 1 in Tulsa, Oklahoma and yes, 1 in Jakarta, Indonesia. We completed 13 significant redevelopments and we'll complete other major development projects this year. In addition, we expect to begin construction this year On 5 to 6 mixed use projects, representing around $800,000,000 of spend From Orange County to Ann Arbor to Boston to Seattle to Roosevelt Field are some of the ones that are planning to start this year and we expect to fund these redevelopments to mixed use projects with our internally generated cash flow of over $1,500,000,000 after dividend payments.

Speaker 2

During 2023, we completed $12,000,000,000 in financing activities, including 3 senior note offerings for approximately 3.1 $1,000,000,000 including the Klepierre exchangeable offering, we recast and upsized our primary revolver facility to $5,000,000,000 and completed $4,000,000,000 of secured loan refinancings and extensions, our A rated balance sheet is as strong as ever. We have approximately $7,000,000,000 of liquidity. During 2023, we paid, as I mentioned earlier, dollars 2,800,000,000 in common stock dividends, we repurchased 1,300,000 shares of our common stock at an average price of Just over $110 per share in 2023. Today, we announced our dividend of $1.95 per share for the Q1, a year over year increase of 8.3%. The dividend is payable on March 29, 2024.

Speaker 2

Now, 20 Moving on to 2024, our FFO guidance is $11.85 to $12.10 per share. Our guidance reflects the following assumptions: domestic property NOI growth of at least 3%, increased Net interest expense compared to 2023 of approximately $0.25 to $0.30 per share, reflecting current market interest rates on both fixed and variable debt assumptions and cash balances, Contribution from other property other platform investments of approximately $0.10 to $0.15 per share, No significant acquisition or disposition activity in our current diluted share count of approximately 374,000,000 shares. So with that said, it's safe to say we're

Operator

Thank you. Our first question is from Steve Sakwa with Evercore ISI. Please proceed with your question.

Speaker 3

Thanks. Good evening, David. I was just wondering if you could maybe talk a little bit about Kind of the leasing pipeline and where things stand today versus maybe the year ago? And what sort of conversations are you having with the tenants and maybe how was the pricing dynamic changed given that you're now kind of 95% leased and pretty full in the portfolio?

Speaker 2

Well, I mean, Steve, we're always adjusting our mix. We're always trying to so even though we're 96% leased their mouse. We're always looking to improve Our retailer mix and obviously that's beneficial to our NOI growth. I would say just generically, And obviously, I spent a lot of time myself on leasing and with my team on leasing. Demand remains very strong and There is a real interest by all sorts of retailers and people that populate our shopping centers to be part of what we're doing.

Speaker 2

So I think as you probably saw, our new deals are $74 a foot, thereabouts. Our renewals are $65 a foot. Our expiring leases this year are in the 56.7% range. So we're seeing Generally positive spreads, supply and demand is in our favor. Historically low Supply in big properties across the country, I mean, There used to be 40,000,000 square feet of retail real estate built every year.

Speaker 2

Now there's essentially less than a few million here and there. So And then there's been obsolescence too, which makes the supply shrink as well. So And then there's just great new retailers that we're very excited to do business with. I was on the West seeing some of them. The importance of bricks and mortar has never been higher.

Speaker 2

And the cost of all of the things that we said about don't get me wrong, e commerce is critically important, but all of this stuff about e commerce, cost of customer acquisition, returns, Stickiness, etcetera, all is continues to be a challenge. If you looked at the marketplaces that Pure Online, they run into problems. So They really need to be connected to a bricks and mortar for survivability. So All of those things are pointing to a positive picture. It's a function of execution, A function of being first, a function of continuing to improve our properties, which we're very focused about.

Speaker 2

But even though we've bounced back And had a couple of really good years in terms of lease up from the depths of the pandemic. We're not finished and retail demand continues and it's strong and it's across the board. I mean, it is not 1 category, 1 retailer, but pretty much across the board.

Speaker 4

Thanks. That's it.

Speaker 2

Thank you, Steve.

Operator

Thank you. Our next question is from Caitlin Burrows with Goldman Sachs.

Speaker 5

David, could you give us some more detail on the ABG sale that you referenced, How much you still own? How much you think your remaining OPI could be worth? And whether you plan to monetize more in 2024 or maybe what could influence that decision?

Speaker 2

Sure. Well, let me just we sold about 2% of our ABG stock. So we essentially went from just under 12 to just under 10. And We'll continue to look to monetize These investments, they've been by and large very good investments across not just the big ones, but the smaller ones as well. Obviously, there's number of them that are synergistic to us.

Speaker 2

But We have a strict adherence to creating value. And we think we can deploy that capital into kind of what I'd call the mother ship and get better growth from that, then that's where our number one priority will be. So it wouldn't surprise me, Caitlin, for us to continue to monetize, obviously, Now some of these are bigger value bigger investments. So it's not easy To do it in one big swoop, but we're very focused on Portfolio management of those assets and if we can monetize them, Are we going to get a better return plowing it back into our core business?

Speaker 5

Got it. Thanks.

Speaker 2

Yes. Thank you.

Operator

Our next question is from Jeff Spector with Bank of America. Please proceed with your question.

Speaker 4

Great. Thank you. And first, congratulations on the anniversary. David, there's a lot of initiatives. So As you think about the next 5 years, I know it's probably a difficult question, but is there 1 or 2 key initiatives that you're most excited about As you think about the next 5 years?

Speaker 2

Well, look, I'd say a couple of things. On the property level, there's no question that All of the mixed use stuff that we're bringing in plus the redevelopment of our The part of the store boxes are probably the most interesting and exciting things that we're doing on the ground well. And so That would certainly be number 1. Number 2 is we're very excited about growing our outlet business in Southeast Asia, it's an incredibly It's an incredibly robust market, young population and a growing And I'm not when I say Southeast Asia, I'm not like in Jakarta, places like that where It's not China, it's places like that where we see kind of what we can do in Japan and in Korea on the outlet side, Jeff, you probably know that better than anybody based on your previous history with in terms of that. So we That's very exciting.

Speaker 2

I'd also say we still are in the pursuit of Bringing technology to our loyal consumers that allow them to enhance and your shopping experience with us. So we've got a lot of initiatives on the marketing, loyalty. Simon Search is a great example where our consumer either in property or pre visit Can search our tenant base for what if they're looking for black dress, where in This center, can I buy it? What retailer? Obviously, that ties into the marketplace we're building With premium outlets, there'll be some news there this year on that front.

Speaker 2

So That whole echo of that whole system about customer interaction, Reinforcing their shopping behavior, rewarding loyalty, Expediting their trip, making it more useful is a big focus. And then as important, I think this is number 4 really is just we've got to do a great job of continuing to evolve our Retailer mix, the exciting thing is there are more and more entrepreneurs, there are more and more exciting retailers that are coming up with great concepts, proving them out and then realizing that our centers are a good place for them to do business. So Those are the ones that come to mind, but I'm certain they'll be ones that I haven't even thought of.

Speaker 4

Very helpful. Thank you.

Speaker 2

Thank you, Jeff.

Operator

Our next question is from Alexander Goldfarb with Piper Sandler.

Speaker 6

So I think at the opening you mentioned that NOI is now exceeding pre pandemic. The dividend is within less than 10% of pre pandemic and sort of thinking about Jeff's and Steve's questions on reinvestment. As you think about getting back to that pre pandemic dividend level, given the investment opportunities, especially lack of supply, growing demand, People are once again really engaged in physical retail. Does that change your trajectory as you think about getting the dividend back to pre pandemic, meaning Are there better investment opportunities with that capital or is the delta really a function of rising interest rates that's meaning that The surpassing pre pandemic NOI versus the dividend is really just a function of the higher interest expense now.

Speaker 2

Well, I mean, Alex, look, our yield is ridiculously hot, okay? So that's really We could financially pay $210,000,000 tomorrow, right? So we have $1,500,000,000 of free cash flow after our dividend. So it's it has nothing to do with financial wherewithal. I mean, We would like we don't like trading at this high yield.

Speaker 2

So I think that's kind of how we look at it. We still think as we have these Additional capital events, we still are anxious to continue to buy our stock deck. And again, when I look at either the S and P 500, I look at the REIT peer group, I look at what the strip center rates are, our yield is plenty high for investors. So tell all of my investors, I could pay $2.10 tomorrow evening, okay, Per quarter without a blink, but our yield is too high. And it'll be there before you know it, but we would like to trade a little lower yield because we think certainly, if you look at it on that basis, Our yield is higher than it should be.

Speaker 2

I mean, the S and P is under 2%. Our REIT strip centers, Tom, are in the 4s. We're close to 7, right? 6.5, 7. So I mean, Alex, you should be pounding the table.

Speaker 6

Yes. Unfortunately, I'm a nonpaying customer. The real customers are

Speaker 2

By the way, we are just so you know, we like your welcome out there. We are west of the Hudson, We're not going to tell you exactly where we are, okay? We may not be in Indiana tonight, but we are

Speaker 6

I assume you'll be in Las Vegas this Sunday.

Speaker 2

Well, I can't tell you my schedule.

Speaker 6

Thank you.

Speaker 7

Sure.

Operator

Our next question is from Michael Goldsmith with UBS. David, base minimum rents

Speaker 2

are up healthily in the low single digit range year

Operator

over year, while you're in the low single digit range year over year, while your tenant sales per square foot are down slightly. So can you just talk a little bit about these dynamics? Is that a reflection of Your rents kind of catching up to some of the strength, the tenants have experienced before their sales have started to come down. And just how long are these dynamics sustainable like this? Thank you.

Speaker 2

Sure. Good question. So I will say this. I think the rent the going in rents, renewals or new leases are very much sustainable. If you look at our occupancy costs, they're still at the low end of our historical range, and we're at 12.6%, and we have run up to 14 plus percent before.

Speaker 2

And I would also

Speaker 4

caution

Speaker 2

These are the sales that our tenants are reporting to us, But they are somewhat affected by returns they get and so on. We actually think our sales per foot are higher than this. Some cases, They have the ability to offset returns. In most cases, they don't. So I just put that out there.

Speaker 2

So I wouldn't and I mentioned this maybe 2, 3 years ago, probably certainly pre pandemic, but We reported I know the market likes it. We actually think our sales were higher. They come from our properties and then they're somewhat affected by returns. And we think some of a lot of those returns are Internet sales returns, so they don't even come from our properties. And so again, when we look at it, We feel like supply and demand, low occupancy cost, high retail sales And just overall demand, we'll be able to generate

Speaker 8

kind of

Speaker 2

the new leasing and renewal spreads that we've seen over the last couple of years.

Operator

Thank you very much. Thank you. Our next question is from Flores Van Dijkam with Compass Point. Please proceed with your question.

Speaker 2

Boris. Looks like we lost floors. Why don't we go on and we'll have a follow-up in queue.

Operator

Our next question is from Craig Mailman with Citigroup. Please proceed with your question. Hey, guys.

Speaker 7

Just going back to maybe the reinvestment here. You guys have plenty of cash after the dividend. And I'm just kind of curious at this point, what is the level of anchor box reinvestment investments you need to do just given what maybe vacant today and after you guys were spared kind of some of the recent Macy's closings. But just as you look at the portfolio today, Kind of what do you think over the next 2 or 3 years you guys could ultimately get back and have to re tenant and just You talked a lot about how the leasing environment is good. Just what's the outlook for retenning those boxes today?

Speaker 7

What's the targeted kind of makeup there and is luxury still doing enough to be able to be the primary kind of backfill option?

Speaker 2

Well, Craig, on the The apartment store boxes, I don't have it off the top of my head, but the ones we own, we basically are Don't have a ton of work to do. We have a handful of boxes that we own that are in process like, for instance, I mentioned, Bray up just briefly on the call, That was a former Sears store. We tore it down. It's in development now, under construction now. So the actual stores that we own are Not many, probably under 10 at this point that are either currently under construction or in process.

Speaker 2

Very small amount of kind of Less of an opportunity than you think. The ones that we transform code still owns some boxes and so does Seritage. So we'll in our properties, so we'll See how that evolves. I mean, eventually, some of those could be opportunities for us to buy and redevelop. We haven't made deals on those just because the ask has been too great.

Speaker 2

But We find and I don't think luxury is really going to be the dominant theme on a lot of these mixed use or I'm sorry, on these Boxes, I think a lot of it will be continue to be the mixed use development that we're doing. And obviously, opening up if it's an enclosed mall, opening the center up with Restaurants and entertainment and so on has worked very well. So we have a number under construction We're about to be under construction, but we don't really have that existing pipe that until we make more deals to buy some of the boxes back. It's not as big as you might think, and it's only a handful. Now Macy's, you're right.

Speaker 2

They announced some store closings, none of which are ours. We're always very focused on knowing exactly where we might be at risk. No. And I would point out very importantly, when Sears went out of business, The whole market said how are you going to survive Sears going out of business. There are 800 department stores at that time.

Speaker 2

Frankly, they're down to, I believe, we're not operating maybe 5%, 6%, 7%, 8%. I think we actually have The most between us and the Talend portfolio. But how are you to survive it. The fact of the matter is it was a non event to the mall customer. And if anything, as we've gotten those Box is back.

Speaker 2

We've made the center better. So as we look we don't look at Box The changes in box as a concern. We view it really more aggressively and progressively as something that will enhance the properties And the assets that we were worried about that couldn't survive that, basically don't exist in our portfolio anymore. So if you ask me that question 10 years ago, I might have a different answer.

Speaker 7

Great. Thank you.

Speaker 2

Greg, I hope you get better prior to the Citi conference. I'm sure you will, but it sounds like you've lost your voice.

Speaker 7

Yes. I'm hoping to be on the mend by then. Thanks, David. All right.

Speaker 2

Be well.

Operator

Our next question is from Vince Tibone with Green Street. Please proceed with your question.

Speaker 9

Hi, good evening. Could you help me better understand how much incremental FFO we should expect in 2024 from Development or redevelopment projects that stabilized either later in 2023 or slated to be finished in 2024. Just any color to help us better understand the of incremental NOI and FFO from all the development activities would be helpful.

Speaker 2

Yes. In fact, it's interesting. You actually take a I think in 2024, we're taking a step back. I'll just give you a trivial example. I mentioned brand now for 3rd time, but we have a whole wing that's connected to the former Sears department store that we're redeveloping.

Speaker 2

We'll have some outdoor shops. We're building with Dick's Sporting Goods. We have a lifetime in fitness resort and then we'll do Roughly 350 apartments or so. But that wing leading to Sears, We've had to de lease it to ultimately put in I'm allowed to say it, but I'll say it anywhere. Xaro and Uniqlo, and they won't open until End of 'twenty four, best case.

Speaker 2

So, Vince, by and large, all of this stuff in the U. K. That we've listed, and I don't believe Raya is in the air. If it is, it's just it will be in there shortly. None of that is really affect it really gets in 'twenty four.

Speaker 2

We do have Tulsa opening In the late summer, that will have a marginal impact. Leasing there is going well. But with all the redeveloping, this is really more of a 25.6 story. And the one that we'll see the benefit of this year, And I don't have a number handy as FIPs, which we opened with 23. Yes, that's kind of the one that I would see most meaningful of it.

Speaker 2

But most of the redevelopment is of 25, 26, Tory.

Speaker 9

No, that's really helpful. I mean, is there any like for just in terms of, I guess the $1,300,000,000 that's active today plus the $800,000,000 you're going to start. I mean what's a fair assumption for 20 25, 20 26 in terms of level of maybe spend stabilizing, I mean, that's how we model it like it's $500,000,000 stabilizing annually Let's call it 7%, 8% yield a fair assumption or that's something I'm trying to get out like how quickly Yes.

Speaker 2

No, I appreciate that. If you don't include what I saw ground up new development, I would say probably about between $600,000,000 $800,000,000 a year. And our goal would hopefully be to bring that in at north of 8. Obviously, if it is multifamily, you could still create value at a lower yield than that. And in some cases, we're building at a lower yield than that.

Speaker 2

Like for instance, both Breyers Apartments And the ones that we're building at the former Northgate Mall, we're basically about to start construction there. We'll be sub 8%. So it may round down that 8%. But if you're talking kind of everything else, we would hope to be north of that.

Operator

Our next question is from Ron Tanzan with Morgan Stanley. Please proceed with your question.

Speaker 8

Great. Just a 2 parter really quickly, starting with the core NOI. Just in 24, can you just touch on the tourist centers and how much recovery there is and how much upside is providing to 24, as well as the variable to fixed conversion, just trying to get a sense of how much of a tailwind that is to the core? And then on the sort of other platform investment,

Speaker 4

could you

Speaker 8

just touch on what seasonality should we be thinking about between sort of the 1st part of the year and 4Q? Thanks so much.

Speaker 2

Sure. So and Brian will chime in here. I'll just give you some thoughts off the top of my head and then Brian hopefully will 3, you're correct me. So I would say we saw in 'twenty three a really decent bounce back from the tourist centers. Now I give you a great example.

Speaker 2

So and I was just having to look at this for no I must have been probably doing my job, but I noticed in Q4, Q4 is an example of the bounce back Woodbury. Q4 sales were around 3 $50,000,000 okay, which to me is a real good indicator bounce back and obviously, the highest 4th quarter sales we've had there in quite some time. So I'd say generally, We're seeing a really good bounce back In the tourist centers, I don't think we're the one area that The U. S. Overall and obviously will an impact on us.

Speaker 2

I do not think we'll see the Chinese we do not expect the Chinese to come back The way they have before pandemic and our And just our tour centers did outpace our sales for the portfolio for 23 on average. So Good bounce back across the board. And then I would say on your variable read, we continue to see that As a lower percent of revenues, both The vast majority, I think we increased our the way to think about it What's interesting is and again, hopefully, Brian won't need to correct me, but Brian is available to correct me. Our domestic operations had $0.28 of improvement, Q over Q That's $0.28 And within that $0.28 our variable income went down. So I think that gives you a kind of a leading barometer.

Speaker 2

We're still working that way down and We're getting that into kind of our base rent. So and then your final on OPI, Loss Q1, relatively flat Q2, Q3 and then most of it in Q4. Q2 is a little better than Q3 usually, but on the margin. And it's only we're only projecting this year $0.10 to $0.15 All right. How do I do it?

Speaker 2

You got it.

Speaker 8

Thanks so much.

Speaker 10

Thanks, Raj.

Operator

Thank you. Our next question is from Greg McGinnis with Scotiabank. Please proceed with your question.

Speaker 11

Hey, good evening, David. I just want to dig into the guidance a bit and that OPI that you just cited in particular. Is it fair to assume that the $0.10 to $0.15 includes gains or monetization similar to last year or operations expected to improve from the minus $0.02 contribution to FFO in 2023?

Speaker 2

Yes. Thank you for that question and the answer, no, that's pure operations and no one time sale gains or any of that are in there. And Yes, I mean, just by I mean, We had a tough 23 in OPI. We saw We didn't meet our both our budgeted expectations and our expectations. It's kind of big year when we re Calibrated it.

Speaker 2

The team in OPI, again, we're partners with so it's not just us. We're partners are making significant efforts within their own business to improve performance. And again, the overriding thing was And we should be sensitive to this across the board. The overriding theme was The lower income consumer still with inflation embedded, Even though inflation has subsided, they're still dealing with things that cost a lot more money than they used to. And the good news is their income is increasing, but it's still not in a position that they have the discretionary income that they need and they deserve.

Speaker 2

And we need to figure that out as a country. So just to clarify that. So no yes, so hopefully I answered. So No one time gains. Hopefully, we're being conservative and that's kind of where the numbers are.

Speaker 2

And just to take a step back, we're kind of getting OPI in this level where it was 3, the extraordinary year of 2021, 2022, if you go back in time, this is kind of where the number was. Nobody cared. We really outpaced ourselves at an extraordinary 2021 2022. And I think now we're kind of Getting back to more kind of a more stabilized number.

Speaker 7

So just

Speaker 11

to clarify, so there's going to be some improvements in operations, I guess, that are going to be kind of driving this year over year growth. But what do you think that implies in terms of operational standpoint and the customer for your other tenants in the portfolio, how are those retailers performing? And are they going to be able to make the same sort of operational changes to benefit income?

Speaker 2

Well, you're just talking about our tenant base now, is that the question?

Speaker 8

Or I guess, JCPenney,

Speaker 2

the ones that are

Speaker 11

plus your tenants, yes.

Speaker 2

Okay. Okay. Well, like I said, the ones in Spark and Penny, I really I mean, I think generally the plan that they have in place, We think we're on the right track and we're All working very hard to produce these results and hopefully, we'll do better than that. Again, I mentioned to you, we're kind of getting back to where we used to be. And if you looked at it in conjunction with pre pandemic 2018, 2019, that's kind of where the number was.

Speaker 2

And we really outperformed in 2021, 2022, And we really underperformed in 2023, simple as that. Brands are good. Businesses are have the right game plan and we're moving. I would so that's Bart, Penny. Any questions on that?

Speaker 2

Then I'll move to your other questions. I mean retail is very specific. I think our retailers, the credit they're generally the credit is in really good shape. There's always 1 or 2 or 3 tenants that we are somewhat nervous about. But they're They all understand the importance of bricks and mortar.

Speaker 2

They're reinvesting in their stores. They're spending less Technology, which is good for us, putting more money back in the stores, and they're open to buying and their return on investment in stores is a proven financial model. They're doing that. So I'd say generally Comfortable, very comfortable with all the retailers that we're doing business with. There will always be a couple here and there that have sort through their financial issues.

Speaker 11

Great. Thanks for the color, David.

Speaker 2

Sure. Thank you.

Operator

Our next question is from Hong Zhang with JPMorgan. Please proceed with your question.

Speaker 4

Yes. Hey, guys. I guess I was wondering if you could quantify the magnitude of the development drag this year. And also it seems like you saw a very strong rent and occupancy growth in the Talend portfolio in the Q4. I was wondering what drove that and what expectations for that portfolio this year as well?

Speaker 2

Just on Talbot, I mean, are there Our expectations on the comp NOI are roughly right on in excess of 3%. What drove both portfolios really is supply and demand, Healthy retail sales, operational excellence, all the things that I mentioned earlier. So Listen, we're a big company. We did have some drag from redevelopment, but It's not an excuse. We don't worry about it.

Speaker 2

And it's not so much Big redevelopment. When you re tenant a mall, you have downtime. And as I mentioned this before, The better the tenant, the better the build out. And in some cases, build out is 6 to 9 months. And restaurants can be even close to a year.

Speaker 2

And as you know, we have our portfolio restaurant new business is at least 1 100 new restaurants over the next year or so. So it is A long arduous process getting permits. I mean, we had a crazy thing in the Bay Area where they couldn't hook up the gas for a while. Encourage you to read the Supreme Court overruling of an ordinance in Berkeley that affected Palo Alto. If you're really bored, you can read it.

Speaker 2

We finally got guests back into the center. And as you know, chefs like to cook with gas. So it was it cost us 6 months And the delay, I mean, that's normal. But I'd say the bigger issue on Yes. Just is that so much redevelopment as really re tenanting?

Speaker 2

And I would say, On and large, if I had to make up a number, it costs us probably $0.10 to $0.20 a year Just downtime. But that's a guess.

Speaker 4

Got it. Okay. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Our next question is from Ki Jin Kim with Tumu Securities. Please proceed with your question.

Speaker 4

Thank you. Just a couple of questions. First, your operating expenses were down in 4Q. I was just curious what drove that and if that's sustainable?

Speaker 10

Yes, Ki Bin, this is Brian. Yes, we did see some savings year over year. There was some seasonality to it. Weather was a little bit lighter. But yes, we do expect it's sustainable.

Speaker 4

Okay. And on the ABG partial sale, Was that a down round valuation versus the $18,000,000,000 mark previously? No. Okay. Thank you.

Speaker 2

Yes. Remember that was enterprise value. They have some debt. So that was an equity value, But it was at so just when you say $18,000,000,000 that's enterprise value as opposed to equity value.

Speaker 4

Okay. Thank you.

Speaker 2

Sure. No problem.

Operator

Our next question is from Haendel Samejuk with Mizuho Securities. Please proceed with your question.

Speaker 12

Hey, good evening out there.

Speaker 2

How are you?

Speaker 12

I'm doing great. I hope you're well too. Question I have is on your side but not yet open pipeline. I think last quarter or you previously outlined about 2 100 basis points of embedded occupancy from that side, but not yet open pipeline. So maybe you can give us an update on where that stands today?

Speaker 12

And then also maybe What's embedded in the guide for bad debt and lease term fees this year? Thank you.

Speaker 10

Sure. So signed open to a little bit north of 200 basis points. We've been kind of holding that as we open stores and sign new leases. So we're holding steady around 200 basis points. We are assuming a normal level of bad debt, which is about 25 basis points of total revenue would be our expectation on that.

Speaker 12

Lease term fees?

Speaker 10

Normal rate of lease term fees, I

Speaker 2

think the answer the number for the year is about 30 Okay. Thank you.

Operator

Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question. Hi, good evening. Just a quick one for me. Just curious on The current state of affairs with Jamestown and how that relationship is progressing, more talk about mixed use.

Operator

So just curious if there's anything in the works or in the planning stages that you're doing with them and how you're thinking about that particular relationships? Thank you.

Speaker 2

Yes. Thank you. So we're we haven't quite had a year under our belt, but Very pleased with the relationship and the partnership, and we continue to Look at opportunities both within our pipeline and obviously, what they do on behalf of investors. So A lot of good feedback going both ways. And We haven't we're working on one project.

Speaker 2

I mean, we have one development project we're Working on together, but other than that, it's a lot of corporate There's it's more strategic and more corporate

Operator

and more of

Speaker 2

a corporate discussion then property level specifics other than one where we are partners on and going through a development process in that now in the Southeast.

Operator

Thank you. Sure. There are no further questions at this time. I'd like to hand the floor back over to management for closing comments.

Speaker 2

Okay. Thank you. And obviously, Tom and Brian are available, And we really appreciate everybody's participation. Talk to you soon.

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Earnings Conference Call
Simon Property Group Q4 2023
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